Croda and Synthomer eye niche acquisitions
Two FTSE 250 groups that make specialty chemicals used in products ranging from latex gloves to anti-ageing creams are on the lookout for acquisitions, at a time when megamergers are gripping the upper end of the industry.
The chief executives of Croda and Synthomer told the FT they were in the market for bolt-on deals as well as bigger transactions that could transform their respective companies.
Their acquisitive appetites chime with the large-scale consolidation that looks set to sweep the broader sector, most notably the proposed $130bn combination of Dow and DuPont of the US.
In contrast to such giants of chemical manufacturing, UK-listed groups are smaller and tend to focus on niche substances that typically sell in low volumes but at high prices.
Callum MacLean, chief executive of Synthomer, which makes synthetic rubber used in medical gloves and has a market value of £1.3bn, said he wanted to double the size of the group “within two to three years”.
“First and foremost we want to invest in our existing business and get organic growth and R&D to move forward,” he said. “However we are quite ambitious to grow by M&A as well.”
He added: “We are looking at adjacent opportunities where they are still specialty chemicals . . . [For larger deals] the spectrum of what we are looking at is up to a maximum of €1bn or sterling.”
Synthomer also produces formulations that go into coatings, carpet backings, paper and plastics. It reported a one-third rise in pre-tax profit to £72.5m in 2015, even as revenue fell 9.7 per cent to £894m because of currency movements and lower raw material prices.
In March, it announced the $226m (£157m) acquisition of an adhesives and coatings business from US-based Hexion.
That was the first deal since Mr MacLean’s arrival in 2015 from Ineos, the petrochemicals group that grew rapidly over the past two decades by acquiring commodity chemical businesses from large international players such as BP, ICI and BASF.
The chief executive of Croda, meanwhile, said the company was concentrating on bolt-on deals providing access to new niches or established areas with fast-growing technologies.
Steve Foots said the £4.5bn-valued company also had four “bigger, transformational” targets on its wishlist and would be prepared to look at transactions above £1bn — though he added a note of caution. “They’re one-in-a-decade, one-in-a-generation events so we’re patient . . . 90 per cent of M&A in our industry, we’d argue, is capital destructive, so you have to be very careful with choosing the right businesses to acquire.”
Founded in Yorkshire in 1925, Croda’s products include active ingredients for anti-ageing creams and additives for fungicides, with customers including L’Oréal, Estée Lauder and Procter & Gamble. Last year it booked record sales and pre-tax profit of £1.1bn and £252m, respectively.
Croda paid €155m (£109m) in December for Incotec, a Dutch company that enhances the performance of seeds — an area it has identified as key for its crop care business. However, some analysts have questioned the ability of both companies to find larger deals, given their positions as specialist suppliers to niche segments.
Since the devaluation of sterling following Britain’s June 23 vote to leave the EU, Croda has also been among a number of UK-listed companies viewed by analysts as potential takeover targets for overseas buyers seeking bargains.
But Mr Foots said: “We are passionate about our independence. We’re a company that is always looking to expand.”