The company wants to free up capital for acquisitions in the biotechnology sector.
(Photo: Reuters)
Frankfurt, Dusseldorf According to financial sources, the specialty chemicals company Evonik is preparing to separate one of its largest divisions. The products of the so-called C4 chemistry are used, for example, as propellants in hairspray, plasticizers for PVC, components in latex mattresses, anti-knock agents in petrol or as raw materials for the tire industry.
The unit achieved sales of 1.8 billion euros last year, but despite recent strong growth rates, it no longer fits in with its core business. Evonik has now commissioned a bank to review options including a sale for Evonik, according to several people familiar with the matter. Evonik declined to comment.
Possible competitors and private equity investors could be approached from autumn. In the event of a sale, Evonik would enter into a long-term supply agreement with the purchaser, as the C4 products are used in many other business areas. Another option is to bring the C4 group into a joint venture, it said.
According to financial circles, the division currently has an operating result of around 200 million euros, but recently had a special boom, which is why bidders expect a medium-term potential of at best 150 million euros. The unit could be valued at seven to eight times the profit if sold, i.e. around one billion euros, it said.
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Possible interested parties include competitors such as Ineos as well as oil companies looking to expand their petrochemical business such as Adnoc, Sabic or Reliance Industries. On the other hand, many chemical companies tend to withdraw from areas in which high CO2 emissions occur.
Evonik achieves high growth rates in the Performance Materials division
The name C4 stands for crude oil processing by-products that contain four carbon molecules in their chains. Manufacturers are dealing with a mixed raw material from which different products are continuously manufactured, which poses challenges.
In Marl, North Rhine-Westphalia, Evonik has built a modern plant for so-called FCC-C4 gases, with which the group can secure a supply of the C4 raw materials.
The business is part of Evonik’s Performance Materials division, which has recently achieved very high growth rates. Several competitors have shut down factories, either planned or unplanned, in recent months, which has led to a shortage of products and almost a doubling of prices.
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The division’s sales increased in the first half of the year by 55 percent to two billion euros, the operating result (Ebitda) even by 86 percent to 260 million. However, the momentum will weaken somewhat again, explained Evonik in its quarterly report presented on Wednesday.
Chemical company wants to free up capital for acquisitions
The Performance Materials division also includes the business with superabsorbents, the core component of diapers. Evonik also intends to sell this unit. Evonik has already completed the spin-off. The company has already started a bank selection process in preparation for an auction. Advisors should be mandated in the fall and a sale started in early 2023, according to people familiar with the situation.
However, the super absorber unit is only half the size of the C4 business and has an annual operating profit of around 80 million euros.
Both units for sale stand for mass products that Evonik boss Christian Kullmann wants to part with. Business is capital intensive and volatile. The company wants to free up capital for acquisitions in the biotechnology sector, for example in medical technology and pharmaceutical supplies. The focus is on high-margin special businesses, which also stand for more sustainability.
Evonik intends to invest around eight billion euros by 2030. A good half of this goes into the green conversion of the locations, whose production should emit significantly less carbon dioxide. Another four billion euros flow into organic growth, primarily into products with an Ebitda margin of more than 20 percent.
More: Evonik is growing and becoming more optimistic about the profit target