INTERVIEW: Advent sees more chemical partnership opportunities after LANXESS/DSM deal

Joseph Chang


NEW YORK (ICIS)–Private equity firm Advent International sees greater opportunities to partner with chemical companies on deals following its joint successful bid with LANXESS to acquire DSM Engineering Materials, one of its managing partners said on Wednesday.

“This is not plain vanilla private equity (PE) but PE working with a strategic partner. This is looking at something very early, committing a lot of resources to it, and working to make it a strategic investment rather than just a PE deal,” said Ronald Ayles, managing partner at Advent International, in an interview with ICIS.

“My view is that as this market evolves, we’re going to have to think more and more about partnering with strategic investors, and thinking like a strategic investor,” he added.

A PE firm bringing real understanding of chemical markets and working with a strategic investor can differentiate itself and gain an advantage in deals, he noted.

Otherwise, “what do you bring to the table other than capital? Capital is a commodity. The question is: Do you have the ideas to do something with it?” said Ayles.

Advent and LANXESS are jointly acquiring DSM Engineering Materials for an enterprise value of €3.7bn, with LANXESS also merging its High Performance Materials (HPM) business with DSM Engineering Materials, for a payment of at least €1.1bn for up to a 40% stake in the combined entity.

LANXESS will receive excess cash on the businesses’ balance sheets at close, which is expected to bring its ownership below 40% – to an estimated 35-40%. LANXESS will have the option of divesting its stake in the JV to Advent after three years at the same price.

Advent and LANXESS are paying about 12.5x earnings before interest, tax, depreciation and amortisation (EBITDA) for DSM Engineering Materials, while LANXESS is divesting its HPM business at a similar multiple of about 12x with an assumed enterprise value of around €2.5bn.

The deal is expected to close in H1 2023, with the combined DSM/LANXESS business having annual sales of around €3bn, becoming a global powerhouse in engineered plastics for the electronics, electrical and consumer goods, and automotive sectors. The enterprise value of the combined company would be around €6.2bn.


The vision for the deal was about two years in the making, with Advent working with both DSM and LANXESS early on, as it became clear that both companies were undergoing transformations with polymers and engineered plastics becoming non-core.

“We have been investing in the chemical industry for over 30 years and with private equity getting more competitive, we look to find opportunities with winning angles,” said Ayles.

Advent agreed on a JV with LANXESS and then jointly discussed a solution with DSM that would be beneficial for all stakeholders, including DSM employees, he noted.

While the DSM Engineering Materials sale was conducted through an auction with a number of bidders, Advent and LANXESS had the winning formula.

“DSM was very focused on a good home for the business, and we had a pretty good proposition around what to do with it,” said Ayles.

“In Europe, it’s also about understanding co-determination – how well we look after employees. That was the same issue for LANXESS when they decided to partner with us. We’ve done about 30 deals in Europe in the chemical industry and know how to handle all stakeholders. That was a feature as well,” he added.


The LANXESS/DSM engineered plastics combination makes sense as the sector has been consolidating rapidly with Celanese acquiring the majority of DuPont’s Mobility & Materials business (pending) and Solvay having sold its polyamide 6,6 businesses to BASF and DOMO Chemicals in 2020.

“If you look at the PA (polyamide) space, the market has been consolidated. This business is really globalising and you need scale/critical mass,” said Ayles.

“This consolidation here is logical. The beauty of it is that it is very complementary. On the one hand you have DSM which is very market facing and Asia focused with about 40% of sales in Asia and quite a set of specialty PAs. And then you have LANXESS which is more auto and European focused, with a capro (caprolactam) backbone, which gives you supply security as well,” he added.


Such regional and end market diversity makes the combination particularly attractive, he pointed out.

Of combined 2021 sales of €3.1bn, Europe, Middle East & Africa (EMEA) comprised around 47%, followed by Asia Pacific at 37% and the Americas at 16% of sales.

Key end markets are automotive/industrial (46% of sales), electronics (18%), packaging (10%) and construction (10%).

By product, PA6 comprises around 32% of sales, followed by PA66 at 9% and polybutylene terephthalate (PBT) at 8%, followed by a wide range of other materials.


“Our view is that as you move into electric vehicles (EVs) and away from combustion engines, high temperature sensitivity is going to be less important and PA6 is probably going to gain share versus PA66. We hold the conviction that PA6 is the space we want to be in,” said Ayles.

The EV transition should be a net positive for PA6 volumes, especially if they gain greater use in battery packs, while the impact on PA66 could be neutral, he added.


The global automotive outlook, including in a recession scenario, was a big focus in the due diligence process.

“People are talking about recession and affordability with the high inflation environment. Are people going to be buying cars? Are we going to see the number of cars built in the world going down?” said Ayles.

“We spent a lot of time on exactly what’s happened over the last couple of years – the shortage of chips, and the order backlog of cars, and [the latter] is really the biggest it’s ever been, which is phenomenal,” he added.

He pointed to US used car prices which were up 22.7% year on year based on the April US Consumer Price Index (CPI) report. New car prices were up 13.2% year on year.

“Maybe we’re going to have a recession as all indicators point to that, but if I look at the backlog in auto, I’m pretty comfortable it’s going to ride through this cycle, because the cars need to be built,” said Ayles.

Private equity can also ride out recessions and down cycles as long as the long-term thesis is intact, he noted.

“We’re long-term investors but also have to look at short-term cycles. But versus public companies, we have the luxury of not getting measured on quarterly results. We can hold through 7-8 years and can see through cycles. And that is very advantageous if you either have a recession in front of you, or a cycle that is going down,” said Ayles.

“It’s harder for public companies to buy these businesses because they are going to get beaten up if a business has four quarters of downturn,” he added.


It’s no picnic for PE firms investing in chemical companies either, as the industry is capital intensive, cyclical and difficult to understand in terms of chemistry and end markets.

But it is exactly for these reasons that Advent chooses to focus on chemicals with its depth of experience in the sector.

“I started investing in the industry 22 years ago. Back then, major chemical companies were quite hesitant about working with PE but that is changing,” said Ayles.

Chemical companies now are more open to viewing PE firms with expertise in the sector as partners to develop optimal solutions, especially for a business to which it does not want to devote significant capital.

“When you have credibility established and a plan, that’s a much better proposition than just running up to every auction,” said Ayles, who noted that corporate partnering can take many different forms.

“You can jointly buy something and divide it up, or carve out an asset and then jointly buy something to consolidate the industry or help them grow in areas where they’re not growing. There are all sorts of structures, but PE needs to do a lot more in working with the industry,” he added.

In March 2022, Advent acquired Netherlands-based chemical distributor Caldic and then merged it with portfolio company Grupo Transmerquim (GTM), a leading chemical distributor in Latin America.

Interview article by Joseph Chang


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