Evonik Closes $640 Million PeroxyChem Acquisition

Evonik successfully closed the acquisition of U.S. company PeroxyChem (Philadelphia) for $640 million after the responsible court in Washington D.C. dismissed the lawsuit filed by the Federal Trade Commission (FTC) to block the acquisition.

“In its judgment, the court confirmed our view of the H2O2 and PAA market and, above all, the strong specialty focus of PeroxyChem’s portfolio,” said Christian Kullmann, chairman of Evonik’s executive board. “The acquisition unlocks additional growth opportunities for us, especially in the market for environmentally friendly disinfectants.”

At the end of 2018, Evonik signed an agreement with One Equity Partners to acquire PeroxyChem, a manufacturer of hydrogen peroxide and peracetic acid and is well-positioned in high-margin specialty applications.

The competent antitrust authorities outside the USA had already approved the transaction. However, in August 2019 the FTC filed a lawsuit to prevent the closing of the transaction.

“Despite the uncertainty, we posted a strong performance in 2019 and reported a further increase in sales and earnings in challenging economic conditions,” PeroxyChem CEO Bruce Lerner said. “Combining the two businesses will enable our motivated staff to develop even better solutions for our customers.”

In 2019, PeroxyChem generated sales of approximately $300 million and an adjusted EBITDA of more than $64 million (2018: sales of approximately $300 million and adjusted EBITDA of around $60 million).

Evonik’s peroxide business also developed positively in 2019. The strategy introduced in recent years to sharpen the company’s focus on specialties is having an increasingly positive impact on the business. It achieved further improvement in earnings and, especially, the EBITDA margin in 2019, which is fully in line with the target corridor of 18–20 percent set for the company as a whole.

To comply with antitrust requirements, the PeroxyChem site in Prince George, British Columbia, Canada will be sold in due course.

This site mainly manufactures H2O2 standard products.

The proportion of earnings from this operation are negligible for both PeroxyChem and Evonik.

“We strengthened Evonik’s financial position by divesting our methacrylates business last year,” Evonik CFO Ute Wolf said. “As planned, now we are investing a part of the proceeds for the selective expansion into high-margin, less cyclical businesses with a high proportion of specialties and a strong free cash flow.”

Hydrogen peroxide is an environmentally friendly and resource-efficient chemical that splits into hydrogen and water during processing. It is, therefore, one of the purest and most versatile chemicals on the market.

Demand is driven principally by the need for sustainable disinfectants.

PeroxyChem’s H2O2 and PAA business focuses on end-users in the environmental, food safety, and electronics semiconductor industries, where cyclicality is low.

Against this backdrop, PeroxyChem successfully started up a wastewater treatment plant using PAA in Memphis, Tennessee, in 2019.

The purchase price (enterprise value) including synergies is about 7.6 times the annual adjusted EBITDA, or 9.9 times before synergies (based on 2019 financials). The acquisition will have a positive impact on Evonik’s adjusted earnings per share and free cash flow already in 2020.

PeroxyChem will be fully consolidated on the closing date, Feb. 3, 2020.

The acquired business will be integrated into the Resource Efficiency segment.