Evonik Industries AG is acquiring the specialty and coating additives business (performance materials division) of the U.S. company Air Products and Chemicals Inc. for $3.8 billion, strengthening its position on the high-margin specialty and coating additives market.

The transaction is intended to be completed by the end of the year. It is expected that the acquisition will be EPS accretive for Evonik in the 2017 business year.

Evonik is already one of the leading producers of specialty and coating additives,” said Klaus Engel, CEO of Evonik. “Air Products’ Specialty and Coating Additives business perfectly complements this fast-growing segment. With this acquisition, we are expanding our portfolio with precisely the right markets, products and innovations and continuing to invest in our growth and profitability.”

Rapid integration

With its own strategic reorganization and creation of three independent operational segments in 2015, Evonik established the right conditions for integrating major acquisitions. As such, Air Products’ specialty and coating additives business can be rapidly integrated into the growth segments nutrition and care and resource efficiency.

The combined specialty and coating additives business has a turnover of about $4 billion and an EBITDA margin of more than 20 percent. At the same time, Evonik is further strengthening its leading position in rapidly growing, highly profitable markets with strong differentiation from competitors and low dependence on commodity prices.

Highly complementary products and markets

With their products and their strong positions in the key global markets, Evonik and the newly acquired business are highly complementary. Their specialty and coating additives add critical and highly valuable characteristics to their customers’ products. The two businesses serve three particularly attractive, rapidly growing core markets: coating and adhesive additives, high-value PU foam additives, and specialty surfactants for industrial and institutional cleaning. They target the same end customers, but with different and complementary products. For instance, Evonik is a leader in PU foam stabilizers while the specialty and coating additives business of Air Products is well positioned in PU foam catalysts. Demand for these products is rising strongly, and the market for these additives will grow far more quickly than overall demand for chemical products.

Geographically, Evonik and the acquired division also complement each other. While the focus of the Air Products’ business is on North America and Asia, Evonik is particularly strong in Europe. With the current acquisition, Evonik is crucially boosting its standing in the North American market, allowing it to serve the increasingly global activities of its customers even more effectively. At the same time, by growing in North America and Asia, Evonik is reducing its dependence on the European market and therefore better protecting its own business against economic fluctuations in individual regions.

Strengthening innovation

Like Evonik, Air Products’ specialty and coating additives business follows a solution-oriented business model driven by intensive interaction with customers in research and development and outstanding technical service. The acquisition will allow Evonik to significantly strengthen its innovation leadership.

High synergy potential and tax benefits

By optimizing production/logistics, marketing/sales and administration, Evonik expects to generate cost synergies of $60 million per year. These should be fully realized by 2020 at the latest. In addition, Evonik expects to achieve revenue synergies by combining innovation activities, leveraging the respective client bases and product portfolios, and taking advantage of geographical adjacencies. In total, the deal is expected to generate annual synergies of $80 million.

The transaction is partly structured as an asset deal, which will lead to tax benefits which are typical for transactions of this nature. These benefits amount to a net present value of more than $500 million.

Transaction financing

Half of the outlay for the acquisition will be financed with the company’s own funds, the other half with additional debt. Evonik will maintain a strong balance sheet and continues to aim for a solid investment grade rating after the transaction.

The planned acquisition remains subject to formal approvals from the relevant antitrust authorities.