Lanxess and Advent want to buy DSM Engineering Plastics

Frankfurt, Dusseldorf The specialty chemicals group Lanxess is working together with the financial investor Advent on a bid for the plastics business of the Dutch competitor DSM. The Handelsblatt learned this from financial and corporate circles. The division is therefore worth around three billion euros.

Lanxess is currently outsourcing similar activities of its own to an independent company called HPM. The DSM division is to be combined with this later. The new company should form a core for further acquisitions in the market, said several people familiar with the plans.

DSM Engineering Plastics and Lanxess HPM both have a strong focus on equipping the automotive industry. They produce high-performance plastics that are used in lightweight construction for electric cars, plugs or battery housings.

The world market for such plastics is currently still highly fragmented. Industry experts expect strong consolidation in the coming years, which will involve the best positions in electromobility equipment. The merger of the divisions of DSM and Lanxess is aimed at economies of scale, cost reductions and sufficient financial strength for further acquisitions, according to the circles.

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At the same time, both companies also have products in their portfolio that are used in combustion cars and that could disappear in the long term as a result of the switch to electromobility.

>> Read here: “Flank god of German industry” – You should pay attention to these six chemical companies in 2022

The plastics division of DSM, which is currently for sale, is significantly larger than that of the Cologne-based company, with sales expected for 2021 of around two billion euros. The adjusted profit (Ebitda) for the current year is estimated at around 300 million euros. In the case of a deal, the division could be valued at ten to eleven times Ebitda, i.e. a good three billion euros. The auction is organized by JP Morgan and Centerview. Lanxess, Advent, DSM and the banks declined to comment.

For Lanxess it would be the next big deal within a short time. The group has spent more than two billion euros on acquisitions since January 2021 – this corresponds to a third of the sales achieved in 2020.

The group is currently integrating the US flavor manufacturer IFF’s antimicrobial protection products business, which it acquired for $1.3 billion. The Cologne-based company is thus strengthening its young growth division “Consumer Protection”, in which businesses with chemicals for disinfection, body care, material protection and water treatment are bundled. It is part of the new core business.

This may no longer be the case for the high-performance plastics. Competitors and investors had already pricked up their ears in November when the Cologne-based company announced the spin-off of the HPM unit. This is usually the first step towards a breakup.

The strategy behind it is now becoming apparent: As an independent unit, HPM is to become an independent larger plastics supplier. The necessary capital for external support is paid to Advent. Lanxess, on the other hand, could go out of business in the medium to long term, according to the circles. All options are open.

Consolidation in the industry is in full swing

But these are still only plans, the sales process has not yet started. DSM has announced the separation of its Materials division in September 2021. It consists of two units that are to be sold separately. First, “Protective Materials” is to be sold, i.e. the business with the extremely strong synthetic fiber Dyneema.

Potential buyers could value the division, which has an Ebitda of around 120 million euros, at up to 1.7 billion euros, according to people familiar with the matter. In the next few days they should receive detailed information packages.

The auction for the plastics unit Engineering Plastics starts later. Because in a few weeks, the US chemical company Dupont will start selling its polyamide plastics division for ten to twelve billion dollars, which will have an adjusted profit of around one billion dollars. Two consortiums led by the financial investors Apollo and Carlyle are interested in this. The DSM business would also be attractive for the buyer because further economies of scale would result.

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With Advent, Lanxess has a financial investor with experience in the chemical industry at its side who has already made nine investments in Germany alone. Most recently, Advent took over Evonik’s Plexiglas business for three billion euros in 2019. However, both will not be the only bidders in the DSM auction.

According to financial circles, the competitor Celanese from the USA, UBE from Japan and investors such as SK Capital or the chemical-affiliated investment company Apollo are interested. The companies declined to comment or were previously unavailable.

The coffers of financial investors are well stocked for acquisitions. Many are looking forward to further reorganization in the industry, with companies spinning off larger businesses and putting them up for sale. In the chemical industry, this process has been in full swing for many years: Lanxess itself is the product of a spin-off from the Bayer chemical units in 2005.

CEO Zachert has reorganized Lanxess

CEO Matthias Zachert has completely reorganized the group in recent years. He prefers high-margin specialty businesses in manageable markets that don’t involve too much capital investment. Measured against this, a medium-term separation from the business with high-performance plastics for the automotive and electrical industry would not be illogical.

In the HPM unit, around 1,900 employees generate sales in the low single-digit billion euro range. It is rather small compared to competitors such as BASF, Dupont or suppliers from China. In the area of ​​high-performance plastics, HPM would be dependent on acquisitions or partnerships in the future. This is how Zachert justified the decision to become independent, which was planned for the first half of 2022.

Matthew Zachert

The Lanxess boss prefers high-margin special businesses in manageable markets and with not too much capital investment.

(Photo: Ulrich Baumgarten/Getty Images)

Lanxess has already exercised its exit in this way: The once dominant business with rubber for car tires had plunged the group into a deep crisis in 2013. Financially strong competitors, especially from Asia, had hit the then world market leader hard. Zachert brought the business into a joint venture with the Saudi Arabian Aramco, Lanxess later got out completely.

DSM – once grown in the petrochemical industry – is in the final stages of a rigorous reorganization. The Dutch group focuses entirely on additives for dietary supplements, animal feed, cosmetics, health products and medicines. In the fall, DSM sold its coatings business to Leverkusen-based Covestro for EUR 1.6 billion.

More: “We will not stand still”: Lanxess boss drives expansion with acquisitions.

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