INTERVIEW: Caldic/Connell merger to create global leader in specialty distribution – Advent

NEW YORK (ICIS)–The planned merger between Europe and Americas-focused Caldic and Asia-focused Connell will create a €3bn global leader in specialty ingredients and chemicals distribution leveraged to high growth emerging markets, a senior executive at Caldic owner Advent International said.

Upon the expected close of the deal in Q1 2023, private equity firm Advent International will maintain a controlling stake in the combined company retaining the Caldic name, with Connell owner Wilbur-Ellis taking a minority stake in Caldic.

The transaction, which will create a global distributor with nearly €3bn in sales, will be an all-equity deal with no debt financing required – an important aspect as this financing is extremely challenged today.

“This will bring overall leverage down because we are merging them with no debt,” said Ronald Ayles, managing partner at Advent International, in an interview with ICIS.

The deal builds on the merger between Latin American distributor GTM, which had been owned by Advent since 2014, with Netherlands-based distributor Caldic, which Advent acquired from Goldman Sachs Asset Management in March 2022.

The Caldic-GTM deal added a big Latin America footprint to Caldic’s existing operations – primarily in Europe and North America, with some presence in Asia-Pacific – and boosted sales to around €2.3bn.

FILLING THE GEOGRAPHIC GAP IN ASIA
“The geographic gap we had was in Asia. With Connell being purely focused on Asia and very sizeable, we effectively fill that gap with no dis-synergies and make it a truly global offering for our principals and our customers,” said Ayles, who also pointed out that Connell is just one of two pan-Asian chemical distributors.

On a geographic basis, the new Caldic will be well balanced, with 31% of sales in the EU, 31% in Latin America, 25% in Asia-Pacific and 13% in North America, according to Advent.

“That’s where the synergies are, so you can cross-sell a lot and have global reach. We will be one of the top three specialty chemical distributors in the world,” Ayles pointed out.

On an end-market basis, the combined company will have around 50% of sales in industrial, 30% in food, 12% in pharmaceuticals and 9% in healthcare and personal care.

“It’s about building a global market leader in real specialties. The one thing which differentiates us is that we are over-geared towards higher growth emerging markets and more stable life sciences and food end-markets,” said Ayles.

“It is a deliberate choice because we see, longer term, more advantages in emerging market exposure. There’s higher growth and also more avenues for penetration as larger companies outsource more. There’s more need for pan-Asian and pan-Latin American distributors with capabilities in these regions,” he added.

Specialty solutions for industrial markets such as CASE (coatings, adhesives, sealants and elastomers) and additives are also important and a core part of the portfolio, he noted.

“We don’t want to diversify too far, but we are pretty well positioned with the new mix,” he added.

RESILIENCE AMID VOLATILITY
Caldic, along with the overall chemical distribution market, has been more resilient amid deteriorating global economic conditions.

“Chemical distribution is less capital-intensive and not very energy-dependent. These supply chain dislocations and changes in cost curves are actually benefitting distributors,” said Ayles.

This is because of greater access to global raw materials, enabling distributors to benefit from price volatility and arbitrage opportunities, he added.

Amid concern about a major growth slowdown in China, Ayles points out that Connell itself is not over-indexed to China but is “truly pan-Asian” with exposure to India, Indonesia, as well as Japan and South Korea among other countries.

MORE BOLT-ON DEALS COMING
Even after this transformational deal, and amid the challenging macro environment, Advent plans to continue making bolt-on acquisitions.

“The beauty of this segment is that here will be many add-on opportunities in all regions. We’ve done five bolt-on acquisitions so far this year and we will see more of them,” said Ayles.

Earlier in October, Caldic announced the acquisition of Spain-based Betaquimica, a distributor of specialty chemicals for industrial applications, particularly for additives for polymers and rubber, along with specialties for desalinisation processes.

Earlier deals for Caldic this year include brew ingredients distributor Mr.Malt (Italy), food ingredients distributor Avatar Corp (US), pharmaceutical ingredients distributor Active Pharmaceutica (Brazil) and food ingredients distributor Food Industry Technology Ltd (UK).

“We’re a long-term investor and we’ve only just started [with Caldic]. We want to build this business further and are committed to the industry. It is a compounder which outgrows the chemical industry quite substantially,” said Ayles.

“The end game is most probably going to be an IPO (initial public offering),” he added.

Interview article by Joseph Chang

Thumbnail photo: Pictured from left to right as they sign the agreement are John Buckley, President and CEO of Wilbur-Ellis; Ronald Ayles, Managing Partner for Advent International (owner of Caldic); and John Thacher, Executive Chairman of Wilbur-Ellis.