Covestro plans to finance the acquisition through a combination of equity, debt instruments and its own cash flow. To this end, it will leverage its current authorized share capital for an equity increase of around €450 million. “With the chosen financing structure, we are striking the right balance between equity and debt,” said CFO Thomas Toepfer.

Heerlen-based DSM’s Resins & Functional Materials business segment and associated units (RFM) reported annual sales of €1 billion and EBITDA of €141 million in 2019. The segment has two divisions, Sustainable Coatings and Functional Materials. With the deal, Covestro will pick up DSM Niaga, DSM Additive Manufacturing and the coatings activities of DSM Advanced Solar.

The Dutch group, which has been refocusing its portfolio toward life sciences, will retain its engineering plastics business. Co-CEOs Geraldine Matchett and Dimitri de Vreeze called the sale of the coating resins activities “another step forward” in DSM’s evolution as a “purpose-led, science-based company” in the fields of Nutrition, Health, and Sustainable Living.” It is currently in the process of acquiring the Erber Group, Glycom and CSK.

For Covestro, the purchase price represents reflects an “attractive enterprise valuation” of 5.7x EV/EBITDA 2021 including future annual run-rate synergies worth around 120 million annually up to 2025. Integrated into the German company, the business’s 2019 EBITDA of €133 million is estimated to come out nearly €8 million higher.

Combining the two complementary portfolios and application fields, the former Bayer Material Science said it expects to strengthen its sustainable and innovation-driven businesses and become “one of the global leaders in attractive growth market for sustainable coating resins,” as well as accelerating the transition to a circular economy.

Taking over the DSM units will add more than 40% to the sales total of Covestro’s Coatings, Adhesives, Specialties (CAS) segment, boosting pro forma revenue to about €3.4 billion.  At the same time, it will create a business of enhanced scale and technological capability, with a stronger growth platform, said Markus Steilemann, CEO since 2018.

In the coatings field, the German company is already a leading provider of water-based polyurethane dispersions. With RFM, it will add a complete range of water-based polyacrylate resins and expand its technology portfolio to include water-based hybrid technologies, powder coating resins as well as radiation curing resins.

Incorporating the DSM optical fiber coatings portfolio will make Covestro a leading supplier to attractive to other forward-looking markets such as 5G and 3D-printing materials, with annual growth rates of more than 20%, the company said.

The Leverkusen-based plastics producer, which is one of the top-ranked players in polyurethane and the market leader in polycarbonate, will also strengthen its geographic footprint with the DSM deal, adding customers in all key coatings resins markets and expanding its global production network by more than 20 sites.

Author: Dede Williams, Freelance Journalist