Univar seeks transformational growth with $2bn Nexeo acquisition

NEW YORK (ICIS)–US-based chemical distributor Univar aims to become the premier global distributor of chemicals and ingredients with its planned $2bn acquisition of Nexeo Solutions, Univar’s CEO said on Monday.

“We have a tremendous opportunity to grow in a highly fragmented marketplace… We will have a broader, more comprehensive, more compelling product offering for our customers, and more reach for our suppliers,” said David Jukes, CEO of Univar, in a conference call with investors and analysts.

“We will have people able to prospect on more customers… to sell high, wide and deep in the marketplace. We expect this to augment our growth plan… This is all about growth,” he added.

With the deal, Univar will grow its US and Canadian chemical sales force from around 660 sellers to about 960. This excludes the sales force of Nexeo’s plastics distribution business which will potentially be divested.

The combined sales of the two US-based distributors on a last 12 months basis is $12.5bn, of which around $2.0bn is in plastics distribution. With the deal, Univar would remain the world’s 2nd largest distributor behind Germany’s Brenntag.

Combined Univar and Nexeo earnings before interest, tax, depreciation and amortisation (EBITDA) is $843m, for an EBITDA margin of around 6.7%.

Univar is buying Nexeo for $2.0bn, including the assumption of $949m in net debt. The $2.0bn purchase price represents an EBITDA multiple of 9.6x on a last 12 months basis.

Based on Wall Street consensus estimated 2018 EBITDA, the multiple is 9.4x. Taking into account a planned $100m in synergies by the end of the third year of completion, the multiple drops to 6.5x, according to Univar chief financial offer Carl Lukach.

Univar will use a combination of newly issued stock and cash in the acquisition, expected to close in the first half of 2019.

Under the deal, Nexeo shareholders will receive 0.305 shares of Univar stock valued at $8.36 per share based on the closing price of Univar at $27.40 on 14 September, plus $3.29 in cash. The cash portion could be reduced by up to $0.41, depending on the price of Univar’s stock at the close of the deal.

This implies a value of $11.65 per share to Nexeo’s shareholders, or a premium of 16% to Nexeo’s closing price of $10.01 prior to the announcement of the deal on 17 September.

The plastics distribution portion of Nexeo Solutions comprises around half of Nexeo’s last 12 months sales of $4.0bn and a third of its $208m in earnings before interest, tax, depreciation and amortisation (EBITDA), according to the companies.

Based on this estimate, Nexeo’s plastics distribution business generated EBITDA of around $69.3m on $2.0bn in sales, for an estimated EBITDA margin of about 3.5%.

That puts the rest of Nexeo’s chemical distribution and environmental services EBITDA at around $138.7m, for an EBITDA margin of 6.9%.

Along with the $100m in annual operating synergies by the end of the 3rd year post closing, Univar sees $15m in annual run rate savings in capital expenditures, which would be achieved immediately.

And with over $375m in expected free cash flow in the first full year post closing, Univar expects to have a debt/EBITDA ratio under 3.0x by that time.

Jukes will lead the combined company as president and CEO, while Steve Newlin will continue as executive chairman.