Swiss Clariant may acquire in US at ‘interesting, fair’ prices – CEO

ZURICH, Switzerland (ICIS)–Clariant will carefully look at potential acquisitions in the US to continue expanding if it finds “interesting and fair” priced targets, the CEO of the Swiss chemical company said on Thursday. 

The company purchased two oil and gas services firms last year for Swiss francs (Swfr) 350m ($350m).

Hariolf Kottmann said the expansions in North America would take place in the Natural Resources division – which includes now the acquired Kel-Tech and X-Chem – and Care Chemicals, as both sector in which Catalysis and Plastics & Coatings, Clariant’s other divisions, operate are already too consolidated and it would prove difficult to make a difference, he said.  

Clariant only disclosed on Thursday the price it had paid for the two oil services firms in the US.

The Swiss company published earlier in the day its fourth-quarter and annual results, which showed revenue for 2016 up by 1% to Swfr5.85bn and EBITDA before exceptionals at Swfr887m, up 4%.

While Clariant’s CEO said rising activity in the oil services sector in the US on the back of the new Administration’s strong backing of the  fossil fuels sector would benefit Clariant, he criticised the protectionist winds coming from the US’ newly elected President Donald Trump.

“We cannot define our objectives and strategies depending on the personality of the President of this country [US]. For sure the chemical industry will benefit if the US administration starts to improve infrastructure, and we will also benefit when the oil price increases,” said Kottmann.

“Free trade and open markets are crucial for wealth and prosperity on Earth. Whether a country starts to close its borders and to limit open and free trade, it is totally the wrong decision and the wrong direction.”

Earlier this week, the largest chemical trade group in Europe, Germany’s VCI, also said the idea considered by the Trump administration to impose a “border tax” for imports into the country was the “wrong course” to take in transatlantic trade.

Both decisions, encouraging more oil exploration and extraction and adopting more protectionist policies, have so far been confirmed by Trump when he approved two pipelines which had been put on hold by the Obama administration – Keystone XL and Dakota Access – and when he signed the country’s withdrawal from the Transpacific Partnership (TPP), a free trade deal negotiated by the previous administration with 11 countries in the Pacific.

Regarding further expansions in the US, Kottmann said that although there are no plans to expand in 2017, Clariant would take advantage of a non-pricey acquisition if there was one, especially in North America.

“It still very tempting [to continue expanding through acquisitions] but the multiples [prices] are very high. Four or five years ago our analysis showed a strong potential in mining and oil services in North America and we weren’t satisfied with the position we had there,” he said.

“While there were several projects we looked at, all of them were too expensive and we never finalised anything. The timing was perfect [to acquire Kel-Tech and X-chem] and you also need a bit of luck – we happened to make the right move to complement the oil service portfolio.”

The multiples paid for the two firms in Texas – the oil producing hub in the US – represented a multiple of 10 times earnings before interest, taxes, depreciation and amortisation (EBITDA), Clariant’s CFO Patrick Jany said.

“I don’t expect we are going [to pursue] an additional acquisition in 2017. Nevertheless, if there is an opportunity with an interesting and fair multiple we’ll think about it,” Kottman added.

As per Clariant’s operations in Europe, Asia and Latin America, the picture was mixed. Brazil is proving a challenging market over the last two years, both for Care Chemicals and Natural Resources, the two sectors in which the company is strong in the country, and sales in 2016 in the country declined by 11%, said Jany.  

On one hand, the crude oil industry – dominated by state-owned, scandal-embroiled Petrobras – has suffered a steep downturn as a consequence of the fall in prices and the political and economic crisis the country has been suffering as of late.

However, the decision to make of Brazil a key market stands, said Kottmann, arguing the country is taking now the right political steps – the government is “taking things more seriously and acting in a professional manner,” he said – which would ultimate help the economy stabilise.

China has posted posted better-than-expected economic data in the last three months and it will continue to be a key market for Clariant, said management, who said the country already accounts for 40% of chemicals use in the world, a rising trend which will continue expanding.

Regarding the talk about a divestment of the Plastics & Coatings division, which accounted for 43% of total company sales in 2016, management is having none of it.

“When we carved out the divisions we also said nothing will happen within next three to five years,” said Kottmann.

The move to make the divisions into standalone legal entities, has been interpreted by analysts as a potential move towards divestment.

Picture above: Clariant’s CEO on Thursday in Zurich, following annual results presentation
Source: ICIS