DSM sells subsidiary to PE firm for €3.85bn

August 2022 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

August 2022 Issue

Global private equity (PE) firm Advent International and specialty chemicals company LANXESS have agreed to acquire the DSM Engineering Materials (DEM) business from Dutch group Royal DSM in a deal worth €3.85bn.

Upon completion of the deal, the unit will be added to LANXESS’s high performance materials business under a new joint venture (JV) into engineering and high-performance polymers.

The enterprise value of the deal is around €3.7bn and will be financed via equity from Advent and external debt. The business represents sales of around €1.5bn with an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of approximately 20 percent. DEM is one of the leading global suppliers of high-performance specialty materials that address key market needs in electronics, electrical and consumer goods.

Advent will be the majority owner of the newly created JV and has extensive investment experience in the global chemicals sector, with a proven track record of transforming companies from corporate carve outs into industry-leading players. Advent will hold 60 percent of the JV, with LANXESS holding the remaining 40 percent.

Completion of the transaction, which is subject to the customary conditions and approvals, is expected in the first half of 2023. DSM has been in the process of selling its materials division since September 2021. The company deemed the unit to be non-core as it plans to focus on its health and nutrition business going forward.

“Joining forces with LANXESS in this industry transforming transaction is a highlight for Advent as we have built a trusted, longstanding relationship and share the highest mutual respect,” said Ronald Ayles, managing partner of Advent International. “Together we plan to bring the experience, deep sector know-how, and financial resources to make the joint venture a global success story for everyone involved. The combination of LANXESS’ High-Performance Materials and DSM Engineering Materials creates a strong platform and brings together extensive expertise, resulting in the best opportunities for employees and more value for customers.”

“LANXESS will once again become significantly less dependent on economic fluctuations,” said Matthias Zachert, chief executive of LANXESS. “In addition, we as LANXESS will strengthen our balance sheet with the proceeds from the transaction and gain new scope for the further development of our Group. With the new joint venture, we are forging a strong global player in the field of high-performance polymers. The portfolios, value chains and global positioning of the two businesses complement each other perfectly. With its innovative products, the joint venture will be able to play a key role in shaping future developments – for example in the field of electromobility. In Advent, we have a strong and reliable partner with profound experience in the chemical industry and our customer industries.”

“In reviewing possible futures for DSM’s Materials businesses, we have found tremendous new homes where they will be core to each new owner’s growth ambitions,” said Geraldine Matchett and Dimitri de Vreeze, co-chief executives of DSM. “DSM Engineering Materials has been a purpose-led, performance-driven frontrunner thanks to its global talented team since the 1980s. We are certain Advent International and LANXESS will be good new owners in a transaction that is strategically attractive for all parties as we focus DSM on improving people’s health and well-being. DSM has a track record of successful transformation over the past half century, and we are well underway in another such moment of strategic change.”

Under the terms of the agreement, LANXESS will be able to divest its stake in the JV to Advent at the same valuation after three years. The company’s EBITDA could then be significantly higher than today as Advent and LANXESS anticipate substantial synergies resulting from the combination of the two businesses.

Richard Summerfield