Lanxess Eyes More M&A After $1 Billion Deal Amid Transformation

Lanxess AG agreed to buy Coca-Cola Co.-supplier Emerald Kalama for $1.08 billion as the specialty chemicals maker advances the transformation of what was once a hodgepodge of chemical assets spun out of Bayer AG.

The purchase from private-equity firm American Securities adds a supplier of preservatives used in food and drinks, after Lanxess passed on the $4.6 billion sale of Lonza Group AG’s Specialty Ingredients business. Emerald Kalama adds a company in Lanxess’s sweet spot of anti-bacterial solutions, without overpaying, Chief Executive Officer Matthias Zachert said.

Lanxess has built a pipeline of 10 possible targets and is opting for a more gradual approach, Zachert said, rather than betting the farm on Lonza’s chemicals division, which was bought this month by Bain Capital and Cinven.

“I’m not entering an acquisition phase looking solely at one target,” he said, declining to discuss specific targets. “That’s something that always leads to a situation where you over pay. This is not my style.”

Lanxess rose as much as 6.3% in Frankfurt, and was up 4.5% at 63.50 euros at 2:59 p.m.

Reasonable Price

The Cologne-based company is paying about nine times earnings, after taking into account synergies following Emerald Kalama’s integration. The price “looks reasonable” in light of last week’s disposal by Lonza for an implied 13 times, Commerzbank AG analyst Michael Schaefer said.

The sale had also attracted interest from buyout firms HIG Capital, Rhone Capital and TPG, Bloomberg News reported in December. Morgan Stanley and Jefferies advised American Securities on the deal.

The divestment marks American Securities’ exit from Emerald Performance Materials, a diversified group it bought in 2014 and has broken up. Dystar Global Holdings purchased Emerald’s polymer additives unit in 2016, while Huntsman Corp. bought the resin-ingredients business earlier this year.

The transaction also suggests industrial companies are eying mergers in advance of developed economies picking up in the second half as the coronavirus pandemic wanes. The value of all deals year-to-date in North America, at $710 billion, is 39% higher than in the same period a year earlier, according to data compiled by Bloomberg. Emerald Kalama generates 45% of its revenue in the region, while Lanxess makes about 23%.

Lanxess shares have outperformed other European chemical rivals since March last year, when the pandemic began to take root on the continent. The German company has climbed 67% in the period, almost twice as much as the Stoxx 600 Chemicals Index.

What Bloomberg Intelligence says:

We look for industry consolidation, as the stronger players flourished during the pandemic and weaker competitors struggled.

Christopher Perrella, senior analyst.

Founded in 2004, Zachert indicated Lanxess is only about halfway through its transformation, after selling the synthetic rubber and other commodity businesses. Returns have improved to 14% from 4%, even in the face of the Covid-19 pandemic.

“The journey is not finished yet,” said Zachert, who just signed another five-year contract. “I see a company that’s halfway there.”

©2021 Bloomberg L.P.

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