Lone Star agrees to acquire BASF’s Construction Chemicals business for €3.17bn

March 2020 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

March 2020 Issue

On 21 December 2019, chemicals giant BASF and an affiliate of global private equity firm Lone Star announced that an agreement had been reached to acquire BASF’s Construction Chemicals business for €3.17bn on a cash and debt-free basis.

The deal is expected to close in the third quarter of 2020, subject to antitrust approval.

The unit, which offers insulation products for the construction industry, has more than 7000 employees, operates production sites and sales offices in more than 60 countries and generated sales of about €2.5bn in 2018. The construction chemicals unit is the world’s largest maker of additives for concrete. The unit also offers a range of substances including concrete repair fillers, grouts and sealants under a business known as Construction Systems.

The deal for the unit has been a long time coming. BASF put the Construction Chemicals business up for sale a year ago, to focus on its more profitable businesses. Rumours of a deal being negotiated for the business have been circulating for some time. It was reported in November that BASF was in exclusive negotiations with Lone Star after the firm beat off interest from a rival consortium which included private equity firms Cinven and Bain Capital. Lone Star was believed to have walked away from the bidding but was invited back to the negotiating table and eventually agreed a deal for the unit.

“Our aim was to find a new home for our Construction Chemicals business where it can leverage its full potential,” said Saori Dubourg, a member of the board of executive directors of BASF SE responsible for the Construction Chemicals business. “Under the umbrella of Lone Star, the Construction Chemicals team can focus on a growth path with an industry-specific approach.” Lone Star already has German building materials maker Xella in its portfolio.

“BASF’s Construction Chemicals business fits very well with our portfolio, complementing our investments in the construction materials industry,” said Donald Quintin, president of Europe at Lone Star. “We highly value the industry-wide recognised knowledge and competence of BASF’s Construction Chemicals experts, backed by a strong track record in innovative products and a compelling R&D pipeline. We look forward to jointly pursuing a growth-oriented business approach.”

The sale of the Construction Chemicals business, initially purchased by BASF in 2006 from Degussa for €2.7bn including debt, is part of BASF’s wider reorganisation programme. In June 2019, the company announced it would make 6000 job cuts by 2021 as part of a restructuring to save €2bn annually. The company has blamed recent falling sales and profits on global trade difficulties and ongoing economic uncertainty. In September 2019, the company agreed to sell its ultrafiltration membrane business to DuPont Safety & Construction, a division of DuPont, for an undisclosed amount.

In October 2019, BASF management board chairman Martin Brudermueller said, “We received confirmatory bids and are now progressing with a smaller number of interested parties”. Mr Brudermueller expected the deal to be agreed by the end of 2019.

It is believed that BASF had initially hoped to divest the unit to the world’s largest cement maker LafargeHolcim, but the parties were unable to agree a deal.

BASF generated sales of around €63bn in 2018 and the sale of the unit will have an immediate effect on the reporting of the wider BASF Group going forward, the company confirmed. Retroactively as of 1 January 2019, the sales and earnings of the construction chemicals division are no longer included in the group’s sales and earnings before interest, tax, depreciation and amortisation (EBITDA). Prior year figures will be restated accordingly.

Richard Summerfield