Solvay SA (SOLB) agreed to buy U.S. producer Chemlogics for $1.3 billion in cash to expand its offering of chemicals for the oil and gas industry.
The Belgian company is paying 10.7 times earnings before interest, taxes, depreciation and amortization for the business, which generated about $500 million in annual sales, Solvay said today in a statement. The Brussels-based chemical manufacturer will sell about 1 billion euros ($1.35 billion) in hybrid bonds to help support finances.
The purchase is part of Chief Executive Officer Jean-Pierre Clamadieu’s transformation of Solvay as he expands its offering of more profitable materials. Profit from Chemlogics’s products, used to ease friction in drilling, is growing at more than 10 percent, said Solvay, which already makes some ingredients used in this area. That contrasts with a slowdown in sales at polyvinyl chloride operations that Clamadieu is seeking to exit via a joint venture with Ineos Group Holdings.
“This is a good fit in terms of clients as for the first time they will be getting feedback” from customers, said Filip De Pauw, an analyst at ING Bank. “There’s not much I can say about the price at this point as they haven’t disclosed synergies.”
The price Solvay is paying will be 8.7 times Chemlogics earnings, once an expected tax benefit is taken into account, the Belgian company said. Paso Robles, California-based Chemlogics generates about $125 million in Ebitda, with three factories, eight formulation sites and six research hubs.
Solvay rose as much as 2.8 percent and was trading up 2 percent at 109.60 euros as of 12:04 p.m. in Brussels. That pushed the stock to a 0.2 percent gain this year.
Oil and gas additives are a business hotspot for the $4 trillion chemical industry, with expansion in shale extraction in the U.S. attracting European players including BASF SE and Evonik Industries AG. Swiss producer Clariant SA (CLN) and Kemira Oyj (KRA1V) of Finland have already made purchases to expand in the segment.
Chemlogics, part-owned by One Equity Partners LLC, was founded in 2002. It provides friction reducers for drill heads as well as cementing materials that complement Solvay’s Novecare range of surfactants and natural polymers.
Solvay’s client base will be broadened from large customers such as Halliburton Co. to a plethora of niche oilfield-services companies such as Pumpco Energy Services Inc.
The oil and gas production-chemical market is growing by at least 6 percent a year on average, Clamadieu said on a conference call. Stricter environmental regulations are boosting demand for chemicals that can treat the water used in the process.
For Chemlogics CEO Bill Frost, who will retain an advisory role following the acquisition, it’s a way to pass on the company with management largely intact.
“This acquisition accelerates Solvay’s ongoing transformation,” Clamadieu said. The purchase will give the company a “significant” share of the $8 billion oil and gas exploration and production market and savings as the business is merged into existing operations, Solvay said, without giving figures.
Goldman Sachs Group Inc. advised Solvay on the deal.
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