LANXESS and Advent to acquire DSM unit, then form joint venture
German specialty chemicals company LANXESS and Advent International, one of the largest global private equity investors, are establishing a joint venture for high-performance engineering polymers. The two companies have signed an agreement to acquire the DSM Engineering Materials (DEM) business from Dutch group Royal DSM, which will become part of the new joint venture.
DEM is one of the leading global suppliers in high performance specialty materials that address key market needs in electronics, electrical and consumer goods. The purchase price is around EUR3.7 billion (USD3.97 billion) and will be financed by the joint venture via equity from Advent and external debt. The business represents sales of around EUR1.5 billion (USD1.61 billion), with an EBITDA margin of approximately 20%.
In addition, LANXESS will contribute its High Performance Materials (HPM) business unit to the joint venture. HPM is one of the leading suppliers of high-performance polymers, which are used primarily in the automotive industry. The business represents annual sales of around EUR1.5 billion (USD1.61 billion) with EBITDA pre exceptionals of around EUR 210 million (USD225 million).
The automotive industry is a focus customer sector for the new joint venture. Polymers are used, among other things, for lightweight elements in structural parts of vehicles, as well as in the interior, often replacing metal parts to reduce vehicle weight and therefore reduce CO2 emissions. An important growth area is electromobility, where polymers are used, for example, in the construction of battery and charging systems, electronic control systems and power electronics.
Advent International will hold at least a 60% stake in the joint venture. LANXESS will receive an initial payment of at least EUR1.1 billion (USD1.18 billion) and a stake of up to 40% in the future joint venture.
Following the transfer to the joint venture, the HPM business will no longer be fully consolidated at LANXESS, but will be included in the consolidated financial statements at equity. LANXESS’ business portfolio, will consist of three specialty chemicals segments once the transaction is completed.
LANXESS will use the proceeds from the sale of its HPM business to reduce debt and to strengthen its balance sheet. In addition, LANXESS plans to buy back up to EUR300 million (USD321 million) of its shares.
LANXESS will have the possibility to divest its stake in the joint venture to Advent International at the same valuation after three years at the earliest.
The transaction is still subject to approval by the authorities. Closing is expected in the first half of 2023.
“With the new joint venture, we are forging a strong global player in the field of high-performance polymers. The portfolios, value chains and global positioning of the two businesses complement each other perfectly. With its innovative products, the joint venture will be able to play a key role in shaping future developments—for example in the field of electromobility. In Advent, we have a strong and reliable partner with profound experience in the chemical industry and our customer industries,” said LANXESS CEO Matthias Zachert.
“LANXESS will once again become significantly less dependent on economic fluctuations. In addition, we as LANXESS will strengthen our balance sheet with the proceeds from the transaction and gain new scope for the further development of our Group,” Zachert said.
“Joining forces with LANXESS in this industry transforming transaction is a highlight for Advent as we have built a trusted, long standing relationship and share the highest mutual respect. Together we plan to bring the experience, deep sector know-how, and financial resources to make the joint venture a global success story for everyone involved. The combination of LANXESS’ High Performance Materials (HPM) and DSM Engineering Materials (DEM) creates a strong platform and brings together extensive expertise, resulting in the best opportunities for employees and more value for customers,” said Ronald Ayles, managing partner, Advent International.
Global set-up and high backward integration
DSM’s Engineering Materials business comprises polyamides (PA6, PA66) as well as various specialty materials (PA46, PA410 and specialty polyesters as well as PPS). Around 2,100 employees work for the division at eight production and seven research sites in all relevant markets worldwide. In addition to Europe and the U.S., it has a particularly strong presence in Asia.
LANXESS’ High Performance Materials (HPM) business unit is one of the leading producers of PA6 and PBT engineering polymers and thermoplastic fiber composites. A total of 1,900 employees at 10 production and seven research sites worldwide work for HPM. The global production network is characterized by a high degree of backward integration. The backbone is the Antwerp, Belgium site. There, HPM produces not only PA6 polymers but also relevant precursors such as caprolactam and glass fibers.