Ecolab Inc., the largest provider of chemicals and services for water and wastewater treatment, agreed to buy Champion Technologies Inc. for about $2.2 billion in cash and stock, in a bid to become the largest oil-field chemicals supplier in North America.
Ecolab will pay approximately $1.7 billion in cash and issue about 8 million shares of common stock, the St. Paul, Minnesota-based company said today in a statement. The acquisition of closely held Champion should close by year end and add to earnings starting in 2013, Ecolab said.
“The combined businesses strengthen Ecolab’s global energy services business, particularly in onshore North America shale plays,” Laurence Alexander, a New York-based analyst at Jefferies & Co. who rates the shares buy, said today in a note.
Shale production, which uses water, sand and chemicals to free oil and natural gas from rock formations, has quadrupled in the U.S. during the past four years. This is the second purchase by Ecolab of a company that makes energy-related chemicals. The company last year paid $5.4 billion for Nalco Holding Co.
Together, the deals will make Ecolab the largest producer of North American oilfield chemicals, with about a 40 percent market share, according to Mike Ritzenthaler, a research analyst at Piper Jaffray Cos. in Minneapolis.
Ecolab rose 4 percent to $66.24 at the close in New York, the biggest increase since August 2011.
Chairman and Chief Executive Officer Douglas Baker Jr. said he’s expanding his newly created energy services unit by 60 percent with the addition of Houston-based Champion. The purchase shifts the unit’s focus to North America, where unconventional drilling methods are boosting demand for the chemicals Champion produces, such as solvents and rust inhibitors that boost petroleum output.
Champion competes against some of the largest oilfield-services companies, including Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc., making chemicals that are pumped underground to aid production.
Champion has about 3,300 employees in 30 countries generating an estimated $1.4 billion of sales this year, with about 70 percent in North America, Ecolab said. Sales have risen about 13 percent a year since 2009, compared with 11 percent in Ecolab’s energy services unit.
The company is controlled by the descendants of the late Willard M. Johnson, who first bought a stake in Champion in 1959. The opportunity for Ecolab to buy Champion came soon after the larger chemical company bought Nalco, and others also considered buying the business, Baker said on a conference call today. The three families who own Champion were motivated to sell by personal and tax reasons, Steve Taylor, president of Ecolab’s energy services unit, said the call.
Ecolab bought Nalco in December to gain chemicals used in water treatment and energy. Energy services is Ecolab’s fastest-growing segment and will comprise 25 percent of sales with the addition of Champion, up from 19 percent in the second quarter, Ecolab said. The cleaning and sanitizing unit, which supplies chemicals to food processors, restaurants and hotels, will remain the largest.
Ecolab is paying 11.4 times estimated 2012 earnings before interest, taxes, depreciation and amortization, Chief Financial Officer Daniel Schmechel said on the call. The multiple is 9.1 times Ebitda after $50 million in first-year cost savings are achieved and 6.4 times after $150 million in savings, he said. The average chemical transaction this year was for 7.2 times Ebitda, according to data compiled by Bloomberg.
The transaction includes assumption of Champion’s $37 million in net debt. Ecolab plans to finance the deal with a $900 million term loan and $750 million in senior notes, Schmechel said. Ecolab next year will buy back the remaining $280 million of shares in a $1 billion repurchase authorization, he said.
Profit in the third-quarter was about 87 cents a share, Ecolab said in the statement. That tops the 86-cent average estimate of 15 analysts surveyed by Bloomberg.
Champion was advised by Tudor, Pickering, Holt & Co. and Lazard Ltd., the company said on its website. Bank of America Corp. advised Ecolab.