Croda International Plc (CRDA), the world’s second-largest maker of cosmetic ingredients, agreed to buy a Chinese maker of fatty-acid products for 38.2 million pounds ($58.8 million) to tap growing demand for lubricant additives for cars.
The U.K. supplier of sunscreen to Nivea will acquire a 65 percent stake in Sichuan Sipo Chemical Co. from Sichuan Forever Holding Co., Snaith, England-based Croda said today. It’s paying a multiple of almost 19 times earnings before interest, taxes, depreciation and amortization, based on 2012 profit of 3.1 million pounds.
“The reason behind the valuation from our point of view is that it gives us fast growth and specializes the business quickly, so there should be a margin improvement and growth story,” Chief Executive Officer Steve Foots said in an interview. “It allows us a ready entry into a market that we’re starting to know much better.”
Sipo will become part of Croda’s Performance Technologies division, which has come to the fore amid competition and a slowdown in growth in the cosmetic-ingredients business that was the main growth driver. Foots is trying to address the performance unit’s skew toward Europe and get margins close to the levels achieved for consumer-product ingredients.
Croda rose as much as 1.8 percent to 2,459 pence, the biggest intraday increase since July 8, and was trading up 0.5 percent to 2,428 pence as of 10:36 a.m. in London. The stock has gained 2.2 percent this year, valuing the company at 3.3 billion pounds.
A European auto-industry contraction cut demand for additives in lubricants, coatings and polymers, with sales at Croda’s performance technologies business declining 0.7 percent to 100.8 million pounds in the second quarter.
Auto sales in China are surging, helping manufacturers such as Kia Motors Corp. (000270) offset sluggish demand elsewhere. At the same time, the market for more environmentally friendly synthetic lubricants is opening up as the nation seeks to lower emmissions.
Sichuan Forever will retain a 35 percent stake.
The Sipo deal is Croda’s largest since the purchase of Uniqema for $742 million at the time. As an added bonus, it brings access to a rape seed variety that Sipo plants to extract raw materials for its polymer additives that can be used in areas such as food-packaging films.
“Our approach to M&A is technology and geography,” Foots said. “If we can find a manufacturing footprint that gets us into interesting markets and geographies then we’ll take a close look at them.”
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