Pitch Best Deal 2022: Lanxess and Advent International – DSM Engineering Materials
Name of the deal: Lanxess acquires DSM Engineering Materials
Date announced: 31 May 2022
Date closed: Expected to close in the first half of 2023
Published value: 3.85 billion euros
Buyer(s): Lanxess and Advent International
Target: DSM Engineering Materials
Involved firms and advisors
Involved firms and advisors buy side:
Advent International: BNP Paribas (M&A Advisory), EY (Tax Advisory), NautaDutilh (Tax Advisory and Legal Advisory Corporate M&A), Latham & Watkins (Legal Advisory Corporate M&A) Advent International (Private Equity Management) Lanxess: Rothschild & Co (M&A Advisory), EY (Tax Advisory), Gleis Lutz and Stibbe (Legal Advisory Corporate M&A)
Involved firms and advisors target:
Jamieson (M&A Advisory)
Involved firms and advisors sell side:
J.P. Morgan and Centerview Partners (M&A Advisory), EY (Financial Due Diligence and Tax Advisory), Clifford Chance (Legal advisory Corporate M&A and Tax Advisory)
Brief description deal / Deal outline
Lanxess, the specialty chemicals company, manufacturer of basic, fine and specialty chemicals as well as polymeric products, on the acquisition by Lanxess together with Advent, the global private equity firm focused primarily in buyouts, of the Engineering Materials business of Royal DSM for a purchase price of EUR 3.85 billion.
Why should this deal win the Award for Best Deal 2022?
The sale process attracted a lot of media interest due to DSM's iconic reorientation and transformation from a chemical company to a food company. The transaction contained a highly complex carve-out element. Also, the appreciable and outstanding combination of a highly reputable and experienced PE and a highly reputable strategic buyer was noticeable and gave strength to the process.
It is one of the landmark transactions of the past year illustrating the worldwide trend of the transition of companies to a more sustainable footprint. A high performance that takes a former mining company through transition in a chemical company to a much more sophisticated and as sustainable operation as possible.
The sale was conducted as a competitive auction process, with four strong bidders being admitted through to Round 2 of the process. The deal required a balance between promoting DSM's interests in maximising value and ensuring that a beneficial deal was reached for all stakeholders. Overall a competitive purchase price was reached.
The deal was a carve out from the larger DSM group and involved a number of target entities, pulling in multiple specialists across jurisdictions, drawing on the strength of Clifford Chance to collaborate on highly complex cross-border transactions. The carve out, engagement of various stakeholders and negotiation with a joint venture made this a highly complex transaction.
The deal was the culmination of a strategic alignment of DSM's broader objective to pivot its business towards nutrition. The engineering materials business will, following completion, form part of the buyer's joint venture and creating synergies in this sector.
DSM Engineering Materials business is one of the leading global suppliers in high-performance specialty materials that address key market needs in electronics, electrical and consumer goods. In addition, LANXESS will contribute its High Performance Materials (HPM) business unit to the joint venture. HPM is one of the leading suppliers of high-performance polymers, which are used primarily in the automotive industry. The business represents annual sales of around EUR 1.5 billion with EBITDA pre exceptionals of around EUR 210 million. Advent will hold at least 60 percent in the joint venture. LANXESS will receive an initial payment of at least EUR 1.1 billion and a stake of up to 40 percent in the future joint venture.
This acquisition by Advent and Lanxess will create a new global specialty materials company with the focus and investment that can drive the development of customer-focused innovation, in particular for industry’s transition to bio-based and circular solutions.
With this new joint venture Lanxess says it is forging a strong global player in the field of high-performance polymers. The portfolios, value chains and global positioning of the two businesses complement each other. With its innovative products, the joint venture will be able to play a key role in shaping future developments – for example in the field of electromobility. In addition, the company says it will once again become significantly less dependent on economic fluctuations, strengthening the balance sheet with the proceeds from the transaction and gaining new scope for the further development of the Group.
For Royal DSM, the sale of the Engineering Materials business supports the focus the company has on improving people’s health and well-being as they continue their evolution towards being a health, nutrition and bioscience leader.
What is the impact of this deal for the company?
The high performance engineering polymers business will be transferred to a joint venture between Lanxess and Advent. This intended transaction marks the completion of DSM's reorientation and transformation from a chemical company to a food company. DSM Engineering Materials makes plastics. LANXESS will use proceeds to reduce debt and plans to buy back shares.
For Royal DSM, it marks the conclusion of DSM’s review of strategic options for its two Materials businesses and, following the agreement to sell DSM Protective Materials to Avient Corporation in April 2022, the transformation of DSM into a focused science-based leader in Health, Nutrition & Bioscience.
What is the impact of this deal for the direct stakeholders?
Concurrently, Advent and Lanxess will form a 60:40 joint venture in acquiring the business from Koninklijke DSM. Lanxess will contribute its high performance materials business and receive €1.1bn in cash. The consideration was €3.7bn ($3.98bn).
The combination of LANXESS’ High-Performance Materials and DSM Engineering Materials creates a strong platform and brings together extensive expertise, resulting in the best opportunities for employees and more value for customers.
Advent International is committed to partnering with portfolio companies, leveraging collective expertise, to enact more sustainable long-term growth. In the joint venture, the partners will continue to focus on ESG management while committing to creating a more sustainable future.
For the stakeholders of DSM, this now completes the pivot from its materials businesses and has positioned it for its focus on health and wellbeing.
What is the impact of this deal on society?
Both DEM and HPM are pioneers in sustainability, offering bio- and recycled-based alternatives across their product portfolios. Together Advent and Lanxess will bring the experience, deep sector know-how, and financial resources to make the combination of LANXESS’ High Performance Materials (HPM) and DSM Engineering Materials (DEM) a strong platform and resulting in the best opportunities for employees and more value for customers. The automotive industry is a focus customer sector for the new joint venture. There, the polymers are used, among other things, for lightweight elements in structural parts, in the interior and often replace metal parts. In this way, weight can be saved and CO2 emissions reduced. An important growth area is electromobility. Here, polymers are used, for example, in the construction of battery and charging systems, electronic control systems and power electronics. In addition, the materials are used in the electrical and electronics industry, for example in components for smartphones, IT and household appliances.
The new company is expected to be one of the leading suppliers to the attractive and growing automotive, electronics, electrical and consumer goods segments, with a particular focus on environmentally friendly and sustainable products. Within this Joint Venture, Lanxess will be combining its High Performance Materials (HPM) business unit with DSM Engineering Materials (DEM). HPM is one of the leading suppliers of engineering and high-performance polymers, which are used primarily in the automotive industry. Both DEM and HPM are pioneers in sustainability, offering bio- and recycled-based alternatives across their product portfolios.
This new combination of expertise realizes more opportunities to innovate around sustainability in the area of automotive, engineering and other materials.
At the heart of DSM's strategy in disposing its materials businesses is a focus on health, nutrition and bioscience activities. With a growing global population, the world is facing multiple systemic and interconnected food system challenges that impact the health and wellbeing of people, animals, and the planet. Advancements in digital technology and bioscience offer realistic scalable solutions to tackle these challenges, creating new markets and innovation opportunities. DSM, with its strong combination of scientific competences and growing portfolio of nutrition and health solutions, is ideally positioned to capture these opportunities.
What was most complex about this deal?
The deal was a carve out from the larger DSM group and involved a number of target entities, pulling in multiple specialists across jurisdictions. The carve out, engagement of various stakeholders, negotiation with a joint venture and extremely short timelines made this a highly complex transaction.
The transaction was a highly competitive process, meaning considering proposals from different bidders and being able to extract maximum value alongside assuring deal certainty.
Given that this was a sale to a joint venture also involved negotiation with both joint venture partners and ensuring that DSM had sufficient protection vis-à-vis both partners, where required.