The Carlyle Group and Singapore’s Sovereign Wealth Fund GIC have announced their intention to acquire the specialty chemicals division of Dutch conglomerate, Akzo Nobel, for a price of €10.1 billion ($12.6 billion). This purchase price includes debt. The specialty chemicals business of Akzo Nobel manufactures a variety of chemicals used in many consumer products, including soap, food products, pharmaceuticals, and adhesives.
Akzo Nobel’s specialty chemicals division had annual revenues of approximately €5 billion and employed 10,000 people around the world. In 2017, its revenues rose 4%, and operating income increased by 10% to €689 million. The business was one of Akzo Nobel’s most profitable, generating approximately 40% of the entire conglomerate’s adjusted operating income. Carlyle’s purchase valued the division at approximately 10x 2017 EBITDA. This amount was slightly higher than analyst estimates, which valued the business at an EV/EBITDA multiple of between 8.0x and 9.0x. However, Carlyle faced significant competition from a number of rival private equity firms, including Apollo Global Management, Bain Capital, and Advent International, which may have driven the premium up. In addition to Carlyle’s higher bid, another key consideration in Akzo’s decision to sell was the private equity firm’s commitment to keeping the division headquarters in the Netherlands, where 2,500 employees of the specialty chemicals division are based. Carlyle has also made successful investments in the chemicals sector in the past, acquiring Atotech Solutions for $3.2 billion in 2016, as well as more than doubling its equity investment in Axalta Coating Systems with an IPO in 2014.
Most widely known for its Dulux brand of paints, Akzo Nobel faced substantial shareholder pressure to divest its specialty chemicals division after making that exact promise during its fight to prevent a €26 billion hostile takeover attempt by PPG Industries, a U.S.-based rival, as well as during a dispute with activist investor Elliot Management. After Carlyle’s offer was announced, Akzo shares rose 2.7% to €77.70, which was much lower than PPG’s initial offer of €95 per share, paid in cash and stock. Akzo Nobel has also announced that it intends to use the net proceeds from the deal, amounting to roughly €7.5 billion, to benefit its shareholders through dividend distributions or share buybacks. The company also plans to focus on its core paints and coatings businesses, as well as delivering on announced goals such as 15% sales margins by 2020. Akzo Nobel’s paints and coating division improved revenues by 2% in 2017, but operating income decreased by 11% to €825 million.
This deal represents Carlyle’s largest transaction in Europe and reflects the recent trend of multi-billion dollar deals being executed by private equity firms. Along with Blackstone’s $20 billion buyout of Thomson Reuters’ financial terminals business and JAB Holding’s $21 billion acquisition of Dr. Pepper Snapple, Carlyle’s deal may indicate that private equity firms are finally beginning to deploy the record amounts of cash that they have accumulated, which is estimated to be more than $1 trillion across the industry. This may also contribute to higher valuations for potential targets, as private equity firms armed with their surpluses of dry powder compete with one another for deals. We should expect this trend to continue, as PE firms have also been able to raise larger and larger funds. For example, Apollo Global Management raised a record-breaking $24.7 billion buyout fund in 2017. Carlyle itself has raised more than $15.6 billion in its seventh flagship buyout fund, which is expected to close soon.