Covestro recently announced that it has signed an agreement to acquire the Resins & Functional Materials business (RFM) of Royal DSM. By expanding its portfolio in the growth market for sustainable coating resins, Covestro reports that it is taking a significant step in its long-term corporate strategy to strengthen its sustainable and innovation-driven businesses.
Adding about €1 billion (approximately $1.2 billion) in revenues, the integration of RFM is reportedly a substantial strategic growth opportunity to expand revenues of the Coatings, Adhesives, Specialties (CAS) segment of Covestro by more than 40% to about €3.4 billion (~ $4 billion). Covestro agreed to a purchase price of approximately €1.6 billion (~ $1.9 billion), which will be financed through a combination of equity and debt instruments.
“This acquisition is an important step for our corporate strategy,” said Markus Steilemann, CEO of Covestro. “RFM enhances the growth trajectory of our business. By combining our strong innovation capabilities, sustainable product portfolios as well as complementary technologies and customer industries, we will unlock significant value. At the same time, it is also a key step to drive innovation for the transition towards a circular economy.”
Covestro reports that the integration of RFM will create a business of enhanced scale and technological capability, benefitting existing and future customers as well as its employees through a stronger growth platform. With the acquisition of RFM, the company will add a complete range of water-based polyacrylate resins and will expand its technology portfolio to include water-based hybrid technologies, powder coating resins, and radiation curing resins.
The acquisition reportedly diversifies Covestro’s industry exposure and also significantly strengthens the company’s positioning in attractive high-growth markets, including optical fiber coatings and 3D-printing materials. In addition, the combined geographic footprint is strengthening Covestro’s proximity to customers in all key markets and is expanding its global production network by more than 20 sites.
Integrating RFM into its CAS segment creates significant opportunities to unlock incremental value, according to Covestro. The company expects permanent (“run-rate”) synergy effects to build up to about €120 million (~ $140 million) per year from full integration by 2025. These consist of approximately two-thirds of cost and one-third of revenue synergies and are generated, among others, through the alignment of purchasing, sales, and administrative structures in the integrated business, as well as cross-selling and the joint development of new high-performance products.
“The acquisition is strategically and financially a perfect opportunity for us to pursue our long-term growth strategy at highly attractive conditions and tangible synergies,” said Thomas Toepfer, Covestro CFO and labor director. “With the chosen financing structure, we are striking the right balance between equity and debt. We look forward to welcoming our new colleagues under the Covestro roof soon. Together, we will work towards bringing our joint potential to life.”
Closing of the transaction is expected in the first quarter of 2021 and is subject to regulatory approvals, including antitrust clearance. For more information, visit www.covestro.com. DSM’s website is www.dsm.com.