# Synthomer PLC Proposed acquisition of OMNOVA Solutions Inc.

- Link: https://www.directorstalkinterviews.com/synthomer-plc-proposed-acquisition-of-omnova-solutions-inc/412786769
- Published: 2019-07-03T07:30:45+01:00
- Author: Amilia Stone

**Synthomer PLC **(LON:SYNT), a [FTSE 250](https://www.directorstalkinterviews.com/news/ftse-250)
speciality chemicals company, and one of the world’s major suppliers of aqueous 
polymers, has today announced that it has reached an agreement with OMNOVA Solutions
Inc., which develops, manufactures and markets polymers, dispersions, elastomers
and other speciality chemicals, on the terms of a recommended acquisition of the
entire issued and to be issued share capital of OMNOVA at a price of US$10.15 per
OMNOVA Share.

**Strategic Highlights**

·    Creation of a global speciality chemicals company with greater scale and a 
strong platform from which to invest in future growth.

·    Strong synergy potential with target run-rate pre-tax cost synergies of US$
29.6 million per annum by the end of the third year following completion of the 
Acquisition.

·   Natural strategic fit with complementary chemistries and end market presence
as well as materially strengthening Synthomer’s footprint in North America and increasing
its presence in Europe and Asia.

·    Increased exposure to markets offering GDP+ growth and blue chip customer base.

**Financial Summary**

·  Acquisition values OMNOVA’s entire issued and to be issued share capital at US
$473 million (approximately £375 million), with implied enterprise value of US$824
million (approximately £654 million).

·    Acquisition represents an enterprise value multiple for OMNOVA of 9.9 times
OMNOVA’s May 2019 LTM Adjusted EBITDA before Acquisition-related synergies and 9.6
times OMNOVA’s FY2018 EBITDA.

·    Attractive post-synergy multiple with target run-rate pre-tax cost synergies
of US$29.6 million per annum by the end of the third year following Completion.

·    Conservatively financed Acquisition with an estimated leverage of approximately
2.5x net debt / EBITDA expected at Completion with strong cash flow generation driving
expected deleveraging to below 2.0x by the end of the second full financial year
following Completion.

·   Earnings accretion expected in the first full financial year following Completion
and strongly accretive thereafter.

**Transaction Rationale**

The Directors believe the Acquisition represents an attractive opportunity for Synthomer
to strengthen its global position as a major speciality chemicals company underpinned
by significant growth opportunities.

·   **Strong strategic fit with the Acquisition creating a global speciality chemicals
company with greater scale and a strong platform from which to invest in future 
growth:** Following the Acquisition, the Company and its subsidiaries will benefit
from increased scale becoming a major global player in water-based polymer solutions,
having greater customer reach and strong operational capabilities, and will be in
a stronger position to invest in growth, innovation, and people.

·    **Expansion and diversification of product portfolio into new attractive end-
sectors****:** The Acquisition will broaden and strengthen Synthomer’s current portfolio
with entry and/or increased exposure to attractive end-sectors, most particularly
the oil and gas drilling, cementing and stimulation sectors. Following the Acquisition,
the Enlarged Group will have the ability to leverage OMNOVA’s brand recognition 
and technical expertise in new application areas.

·    **Enhanced focus on speciality products supported by strong R&D and innovation
capabilities:** OMNOVA’s focus on commercial excellence, innovation and inorganic
growth initiatives in its Specialty Solutions segment has led to the development
of over 60 products in the past three years and will allow Synthomer to bolster 
its speciality products offering by leveraging the Enlarged Group’s best-in-class
process technology and R&D platform.

·    **Global geographic coverage with increased customer proximity and access to
attractive international markets:** The Acquisition will materially strengthen Synthomer’s
presence in North America, as well as increase its presence in Europe and Asia, 
including further penetration into the high growth Chinese market.

·    **Ability to leverage manufacturing excellence expertise to drive productivity
and cost improvements:** Synthomer intends to utilise best practices from across
the Enlarged Group to improve productivity and reduce costs. The Enlarged Group 
will benefit from excellent raw materials integration and Synthomer’s strong track
record of safe conversion of hazardous feedstocks into water-based polymers.

**Synergies and Financial Effects of the Acquisition**

·   The Acquisition is expected to result in estimated recurring run-rate pre-tax
cost synergies of US$29.6 million per annum by the end of the third year following
Completion.

·    The Acquisition is expected to be earnings accretive in the first full financial
year following Completion and strongly accretive thereafter.

·    Synthomer’s return on invested capital associated with the Acquisition is expected
to exceed its cost of capital in the third full financial year following Completion.

·    The Acquisition will be conservatively financed with an estimated leverage 
of approximately 2.5x net debt / EBITDA expected at Completion with strong cash 
flow generation driving an expected deleveraging to below 2.0x by the end of the
second full financial year following Completion.

Financing and Expected Timetable

·    The Company intends to finance the Acquisition and related fees and expenses
from the gross proceeds of a rights issue of up to £204 million (approximately US
$257 million); and drawings under new debt facilities.

·   The Acquisition constitutes a Class 1 transaction for the purposes of the Listing
Rules, and therefore requires the approval of Synthomer shareholders. Accordingly,
a General Meeting will be convened to approve the Acquisition and further details,
including the notice of the General Meeting, will be set out in a circular that 
will be sent to shareholders in July 2019.

·    In addition, Synthomer shareholders will be asked to approve an increase of
the borrowing limit set out in the Articles of Association from £750 million to 
£1,500 million to enable the Company to finance the debt consideration.

·    Assuming satisfaction or waiver of all conditions to the Acquisition, Completion
is expected to take place in late 2019 / early 2020.

> **Commenting on today’s announcement, Calum MacLean, Chief Executive of Synthomer,
> said:**
> “This transaction is an important step in the continued execution of Synthomer’s
> strategy with an acquisition that is both strategically and financially compelling.
> The acquisition of OMNOVA represents an attractive opportunity to materially expand
> our international business into North America and expand our presence in Europe
> and Asia, creating a global speciality chemical company. 
> The Acquisition provides an attractive financial profile with significant expected
> synergy benefits. Synthomer has been disciplined waiting for the right opportunity
> to deliver value through our inorganic growth strategy and this acquisition will
> provide an additional platform for Synthomer to continue to grow into the medium
> term.
> I am delighted to welcome OMNOVA employees to the business and look forward to
> working with them to take the combined business to the next level.”

**ANALYST AND INVESTOR PRESENTATION**

The Company will host a meeting for the Company’s analysts and investors at 09.00
a.m. (London time) today at Canaccord Genuity Limited (88 Wood Street, London EC2V
7QR).

The presentation will be webcast on the Company’s website www.synthomer.com.  

Participants may also join by conference call using the following dial-in details:

International Access: + 44 (0) 20 3037 9315
UK Toll Free: 0800 368 2276Password:
Synthomer

Please note that those joining remotely and wishing to participate in the Q&A session
should dial into the conference call facility.

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