Global and local firms eye acquisition of Songwon Industrial

Global private equity funds and South Korean conglomerates are in the race to acquire Songwon Industrial Co., a leading petrochemical firm based in South Korea. Recognised for its dominant market stance, Songwon stands as the world’s second-largest producer of antioxidants.

Industry insiders revealed that several global private equity entities, including Carlyle Group, Kohlberg Kravis Roberts (KKR), Blackstone, and Hillhouse Capital, are considering the acquisition, according to Pulse News. Notably, major South Korean corporations such as LG Chem, Kumho Petrochemical, and Hanwha Solutions have also shown interest.

Previously, Songwon appointed Goldman Sachs as its primary underwriter to facilitate the sale of about 36% of its ownership, a stake held by the company’s founding family. Market analysts estimate this stake’s value, inclusive of a management premium, to be approximately KRW250 billion (USD189 million). As of the end of August, the market capitalisation of Songwon was close to KRW490 billion (USD371 million).

Established in 1965, Songwon specialises in producing antioxidants, especially polymer stabilisers. These stabilizers play a crucial role in preventing the degradation of plastics due to external factors like temperature variations and light exposure. Such antioxidants are vital additives that boost the longevity of products across multiple sectors, including automotive, electronics, semiconductors, and construction.

Globally, Songwon’s market share in the antioxidant domain is second only to Germany’s BASF. In 2022, the company reported an operating profit of KRW185.1 billion (USD140 million) from sales totaling KRW1.33 trillion (USD1 billion). However, geopolitical uncertainties led to a dip in product demand in this year’s second quarter of 2023. The Group reported consolidated sales of KRW269 billion (USD204 million), marking a 21.4% decline compared to the same quarter in 2022. This downturn continued from the first quarter, reflecting the challenges faced by the industry.

The year-to-date consolidated sales stood at KRW536 billion  (USD407 million), a 21.3% decrease from the previous year. The net profit for Q2 was notably lower at KRW22 billion(USD17 million), compared to KRW82 billion (USD62 million) in Q2 2022. The gross profit margin for the quarter was 16.4%, a drop of 8.3 percentage points from the previous year.

Several factors contributed to this performance. Geopolitical tensions, economic volatility, and reduced demand across various regions have impacted SONGWON’s divisions. The Industrial Chemicals division, for instance, faced aggressive pricing strategies and intense competition, leading to a 23.7% drop in revenues for Q2 2023. The Polymer Stabilizers division was affected by the Russia-Ukraine conflict and increased product availability from Asia. Meanwhile, the Performance Chemicals division reported a 14.4% decline in revenues compared to Q2 2022.