By Anthony Borgese, Zen Suzuki, Jessica Pei, Susan Xiao (University of Pennsylvania), Christina Lee, Ryan Horlick, and Britney Cheng (University of Michigan)
Overview of the deal
Acquirer: Lanxess AG (OTCMKTS: LNXSF)
Target: Emerald Kalama Chemical
Total Transaction Size: $1.04 Billion
Announce Date: Feb 14th, 2021
Expected Close date: Second Half of 2021
Legal Advisor to Acquirer: Shearman & Sterling
Lanxess AG has agreed to purchase 100% of Emerald Kalama Chemical’s shares from majority owner and private equity firm American Securities LLC, for a purchase price of 867 million euros ($1.04 billion). The price tag comes from Emerald Kalama’s enterprise value of $1.075 billion, minus about $35 million in debt-like items. Lanxess will finance the transaction with their existing liquidity. Lanxess believes that Emerald Kalama’s products will perfectly complement their Consumer Protection portfolio, and forecasts top line and cost based synergies of 25 million euros ($30 million) by 2024. With their acquisition of a global leader in the consumer segment of specialty chemicals, the Germany-based company hopes to strengthen their position in areas like the food and animal health industries – these sectors in particular have potential for long-term growth due to the global rise in pests as well as increasing demand for plastic-free packaged and processed foods. In addition, Lanxess has its North American headquarters in Pittsburgh and hopes to strengthen their presence in the North American market, where Emerald Kalama currently generates about 45% of their $425 million in sales. Lanxess anticipates that they will be able to quickly integrate Emerald Kalama’s production activities, which are already efficiently bundled into three sites.
Company Details: (Acquirer - Lanxess)
Lanxess is a German specialty chemicals company that produces and develops chemical intermediates, additives, and plastics. Lanxess places emphasis on performance and customers’ requirements when developing new products and solutions. Lanxess also values following environmental and safety standards to establish sustainable solutions. (Source: Lanxess.com)
Founded in 2004, headquartered in Cologne, Germany
CEO: Matthias Zachert
Number of employees: 14,000
Market Cap: $5.4B (as of 2/21/2021)
EV: $6.4B (as of 2/21/2021)
LTM Revenue: $6.2B
LTM EBITDA: $872M
LTM EV/Revenue: $1.1B
LTM EV/EBITDA: $3.9B
Company Details: (Target - Emerald Kalama)
Emerald Kalama is a privately owned specialty chemicals company. The company offers material solutions in the adhesives, foods, beverages, fragrances, cosmetics, home care, rubber, and vinyl product areas. Emerald Kalama also prides itself on being a leader in fragrance chemical compounds. Additionally, all of the company’s ingredients are produced within their operations in the U.S. and Europe. (Source: EmeraldKalama.com)
Founded in 2008, headquartered in Washington, USA
CEO: Edward T. Gotch
Number of employees: 500
EV: $1.075B (as of 2/15/2021)
Projections and Assumptions
After the announcement of the deal on February 14th by Lanxess, the price per share of their stock reached its second highest in the past year on the 16th, signifying that this is a favourable transaction by investors.
With high growth potential, the businesses of Emerald Kalama Chemical are an ideal fit for Lanxess. Emerald Kalama generates 75% of its turnover with specialties in the consumer segment. The transaction brings opportunities to further strengthen Lanxess’s Consumer Protection segment and open up new application areas with strong margins such as the food industry and animal health sector. In addition, Lanxess also expects to enlarge their presence in the growth region of North America, where Emerald Kalama generated about 45% of their sales last year. This transaction brings tremendous areas of growth and potential, all of which can help Lanxess become more profitable and stable in the near future.
Because Emerald Kalama has a very efficient setup as it has bundled all of its production setup into three sites, Lanxess anticipates a short adjustment period and quick integration of their new business.