BASF SE (BAS) agreed to buy Becker Underwood Inc. for $1.02 billion as Kurt Bock makes his first major acquisition as chief executive officer with a move into biological seed treatments.
BASF will create a business unit called Functional Crop Care to encompass the Ames, Iowa-based business, which is forecast to generate $240 million in sales in the year through September, the German chemical maker said today in a statement. Norwest Equity Partners is exiting the asset after eight years.
Becker will feed BASF’s plans to grow in biological crop care as well as animal nutrition as the Ludwigshafen-based company moves away from commoditized products such as plastics. Demand for seed treatment is “rapidly growing” as farmers look to science to improve yields and fight pests, BASF said.
“This will strengthen BASF’s own seed treatment activities and create a global leader,” Laurent Favre, an analyst at Bank of America Merrill Lynch, said in a note. The “valuation is punchy, but in line with previous deals.”
The price is equal to 4.25 times sales. Novozymes A/S (NZYMB) paid 4.6 times sales for its purchase of EMD/Merck Crop BioScience, according to Bank of America.
“Becker seems to be highly profitable, and the purchase makes strategic sense,” said Christian Faitz, an analyst at Macquarie in Frankfurt. “The price seems high based on multiples, but it line with comparable deals, and BASF may well be able to justify it by the high growth rates in the seed business.”
Becker’s offering includes microscopic worms that feed on soil-dwelling fungus gnats and are safe to humans and the environment. Traditional chemicals face increased opposition in Europe and the U.S. on environmental concerns as well as consumer interest in reducing exposure to farm sprays.
“Becker Underwood has a strong position in North America,” Markus Heldt, head of BASF’s crop-protection division, said in the statement. “We will continue to expand this core business as we expand globally.”
Bock, who took over as CEO in May 2011, is handing investors BASF’s first billion-dollar acquisition after months of speculation surrounding how he will use cash reserves. Becker is expected to return an earnings before interest and taxes margin of more than 20 percent, with a sales outlook decoupled from the overall economy, Favre said.
“On a three-year view, it therefore seems to make a lot of sense to us, if they can deliver on the growth potential,” Favre said.
Greenhill & Co. advised Norwest Equity Partners.
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