BASF to boost global position in nylon 6,6 with Solvay deal

BASF is making a big move in the nylon 6,6 chain with its planned €1.6bn acquisition of Solvay’s polyamide business. The combination will create a fully integrated business, going back to all the key feedstocks.

BASF has been exceptionally disciplined in its mergers and acquisitions (M&A) activity, and the Solvay deal exemplifies its approach. The price, which includes the assumption of about €200m in liabilities, represents a modest multiple of around 8x 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) and just 7x trailing 12 months EBITDA to June 2017.

The Solvay polyamide business being sold to BASF generated 2016 EBITDA of around €200m on sales of €1.315bn, giving it a margin of 15%. EBITDA in the 12 months through June 2017 was €230m. Given the fit of the businesses and potential synergies, the deal, expected to close in Q3 2018, looks to be a good one for BASF.

BACK INTEGRATION

Solvay’s business brings key nylon 6,6 feedstock adiponitrile (ADN) through joint venture Butachimie with INVISTA in Chalampe, France. The ADN facility is the world’s largest with capacity of 520,000 tonnes/year, according ICIS Plants and Projects. BASF currently buys ADN, which is used to produce polyamide intermediate hexamethylene diamine (HMD), which in turn is combined with adipic acid to make nylon 6,6.

JPMorgan Cazenove analyst Martin Evans notes that “only a few companies, namely INVISTA, Butachemie (INVISTA/Solvay JV), Ascend Performance Materials, and Asahi Kasei, manufacture ADN globally and so access to this key raw material is important”. BASF already has butadiene (BD) which it would feed into ADN facility for a fully integrated nylon 6,6 chain. Around 50% of Solvay’s polyamide business’ sales were in Europe, 40% in Asia and the rest of the world, and 10% in South and North America. Key end markets are transportation, construction, industrial applications and consumer industries.

GROWTH PROSPECTS

BASF sees the global polyamide market growing at above GDP, at around 3.5% annually. Automotive is the most important end market for nylon 6,6 engineering plastics.

While there are concerns that these high-temperature resistant plastics will have less demand in electric vehicles (EVs) which generate far less heat than conventional internal combustion engines, the company highlights that EVs demand certain polyamide components such as lightweight crash elements for batteries, housings of high-voltage batteries, connectors and charging couplers.

The Solvay acquisition brings BASF a greater presence in Asia and South America, a wider range of engineering plastics, a broader set of technical skills and innovation capabilities and improved reliability of supply with back integration. Without disclosing a number, BASF cited cost synergies through operational excellence, procurement and streamlining of value chains, as well as top-line synergies from complementary customer portfolios and cross-selling opportunities.

#2 GLOBAL PLAYER IN NYLON 6,6

BASF says it is ranked number one in polyamide 6 and 6,6 compounds globally with total capacity of 820,000 tonnes/year of polyamide. Polyamide 6 is produced through a different process than 6,6 with the former using caprolactam as a key feedstock. According to an analysis on just the nylon 6,6 market by JPMorgan Cazenove’s Evans, combining Solvay as the #4 player with BASF as #5 will create the #2 worldwide company in nylon 6,6 resins by capacity with about 16% market share. It would trail only US-based Ascend Performance Materials in nylon 6,6.

The deal will increase BASF’s exposure to automotive, as this market accounts for about 40% of polyamide 6,6 sales, said the analyst. Shares of BASF edged down 0.2% on the announcement, while Solvay’s shares fell 1.4%.