The German specialty chemicals producer is paying $1.3 billion, in line with the valuation estimated earlier for the former Dow Chemical activities transferred to DuPont in the 2017 split of industry heavyweight DowDuPont. The transaction is subject to regulatory approval and because the business currently trading as IFF Microbial Control must first be carved out from the IFF group, Lanxess is looking toward a closing date in the second quarter of 2022.

On completing the deal sealed on Aug. 23, Lanxess said it will become one of the world's largest suppliers of microbial control products, strengthening its specialty chemicals portfolio in growth areas and adding sales of $450 million, along with some $100 million in EBITDA annually.

The IFF portfolio encompasses antimicrobial active ingredients and formulations for material protection, preservatives and disinfectants used in applications led by personal care and household products, industrial water treatment and paints and coatings. Following the takeover, the activities will become part of Lanxess’ Material Protection Products business unit.

Purchase price termed “attractive”

Taking into account synergies expected to result in an additional $35 million in EBITDA within four years, Lanxess CFO Michael Pontzen said the purchase price of 9.6 times EBITDA is “attractive.” The Cologne-headquartered company will finance the acquisition with debt capital. Pontzen said the bridge financing already secured for the buy will be replaced with corporate bonds to be launched on the capital market in the coming months.

Expected to be accretive to per-share earnings in the first business year after closing, the IFF buy is the second major deal for Lanxess in 2021. At the end of the first quarter, the company that got off to a sluggish start following its 2004 carve-out from Bayer boosted its position in consumer specialties with the $1 billion takeover of US specialty chemicals producer Emerald Kalama Chemical from affiliates of private equity firm American Securities. Through this transaction, it added sales of $425 million and EBITDA pre-exceptionals of $90 million, while also strengthening its presence in North America.

“In 2021, all signs are pointing to growth,” said CEO Matthias Zachert. “The acquisition of IFF Microbial Control is already the fourth this year and the second largest altogether for Lanxess.” The new addition, he said, “fits ideally into our strategic direction – specialty chemicals with attractive margins, applications in a wide range of industries and with a global positioning. At the same time, we are enhancing Consumer Protection to become the strongest segment in the group and are once again taking Lanxess a decisive step forward in terms of profitability and stability.”

Share buyback program will not be continued

With its recent successful acquisitions, Zachert said Lanxess has created attractive growth opportunities and is now reprioritizing its capital allocation. Against this background, the share buyback program suspended earlier this year will not be continued, and the approximately 1.1 million shares already purchased will be canceled.

Along with the microbial unit, IFF was thought to be interested in shedding some of the food preparation assets picked up in the DuPont deal No details of any  such activity have surfaced in the interim. Speculation at the time was that this business could fetch about $200-300 million.

IFF selling fruit preparation assets to Frulact

Along with the microbial control unit, IFF hinted in February that it was interested in shedding some of the food preparation assets picked up in the DuPont merger. In May, the company said it had agreed to divest the fruit preparation activities to Frulact, a Portuguese player specializing in fruit preparations for the food and beverage industry. The business that contributed about $70 million to IFF sales in 2020 was expected to change hands during the current third quarter. Full financial terms of this deal have not been disclosed.

Author: Dede Williams, Freelance Journalist