‘Gigantic’ return on Evonik methacrylates business sale – CEO

ESSEN, Germany (ICIS)–The €3bn deal value for the sale of Evonik’s methacrylates business exceeded market expectations and gives additional flexibility for the Germany-based specialty chemicals producer’s growth plans, CEO Christian Kullmann said on Tuesday.

Evonik announced the sale of the business to US-based private equity firm Advent International late on Monday as part of its drive to reduce exposure to more cyclical businesses in favour of specialty chemicals, with completion expected by the end of the third quarter 2019.

The sale includes Evonik’s methyl methacrylate/polymethyl methacrylate (MMA/PMMA) operations, Acrylic Products and CyPlus cyanides product lines, and some methacrylate resins.

The price tag represents an 8.5 times (8.5x) multiple on the business earnings before interest, taxes, depreciation and amortisation (EBITDA), a higher valuation than analysts had been guiding for and giving the company a greater degree of financial stability, according to Kullmann.

“The markets saw a price of €2.5bn for [the] MMA [unit], but it achieved €3bn, this is gigantic… [and] gives scope and freedom for further development of the company going forward,” he said, speaking to reporters in Essen.

Advent International is also honouring Evonik’s pledge to exclude forced redundancies from the business until 2023.

Evonik’s shares were trading up 4.66% by 11:30 GMT, despite negative fourth-quarter results on the back of weakness at performance materials and logistical costs associated to low water levels on the River Rhine during 2018.

The sale price includes €500m in pension liabilities that Advent has agreed to take on, while the book value of the asset – reflecting the net value of an asset minus liabilities – is €1bn, according to Evonik CFO Ute Wolf.

The sale value allows the company to finance its $625m purchase of PeroxyChem without further bond issuances, helping it to retain a strong investment grade among ratings agencies, a priority for Evonik, Wolf added.

Proceeds are also earmarked for growth projects, including Evonik’s investment in new polyamide 12 production capacity at its Marl, Germany, production site.

Evonik had groomed the business for sale over the course of several years, according to Kullmann, working in 2016-17 to drive down production costs and restructure the business with the goal of creating a MMA/PMMA ‘verbund’ structure before announcing in March 2018 that it was exploring options for the unit.

The business generated an average annual earnings before interest, taxes, depreciation and amortisation (EBITDA) of about €350m and sales of about €1.8bn/year in 2016-2018 and expects similar levels for 2019, Evonik said.

However, the three-year average does not fully convey the extent that strong margins along the methacrylates value chain drove performance materials division profitability in 2018.

Analysts projected that around €400m of the €670m performance materials earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2018 would be from MMA/PMMA sales, and Evonik forecast that earnings would fall by €150m in 2019.

“The methacrylates business benefited from a positive supply/demand situation, and we believe the point in time for the divestment was just perfect,” Wolf added.

Chemicals equity analysts at London-based Bernstein Research said that the price tag achieved by Evonik, which represents around 10 times (10x) EBITDA when an average of the period 2015-2018 is calculated, represented a real achievement in the current economic cycle.

“Divesting a commodity business for 10x EV [enterprise value]/EBITDA at this point in the cycle is impressive,” said Bernstein.

The methacrylates business has 18 production sites and 3,900 employees worldwide.

Pictured: Evonik’s headquarters in Essen, Germany
Source: Westend61/REX/Shutterstock

Additional reporting by Jonathan Lopez