Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

BASF finally found its "big" deal.

The world's biggest chemical maker has been conspicuously absent from the industry's rush of mergers, but not for lack of trying. BASF has reportedly considered buying everything from giants like DuPont, Syngenta and Monsanto to a business that Air Products was divesting, only to stay on the sidelines. The German company's position as a sort of last man standing has given way to near constant will-they-or-won't-they speculation. Friday brought the big reveal of its largest acquisition in six years and the winner is...Albemarle's surface-treatment business, Chemetall.

Chemical Attraction
Takeover activity in the sector has hit a record thanks to a handful of mega-deals.
Source: Bloomberg

It's not the sexiest deal (metal coatings, oh boy!) and at $3.2 billion, it seems rather puny stacked up next to ChemChina's $46 billion bid for Syngenta and Bayer's rebuffed $62 billion offer for Monsanto. But BASF gets points for biding its time and striking only when it felt the price was right.

The takeout implies a trailing 12-month Ebitda multiple for Albemarle's Chemetall business of about 15.3, the companies said. That's not dirt cheap, but it looks pretty reasonable in an industry that's gone hog wild with expensive deals lately. Chemical targets larger than $1 billion have commanded a median takeover valuation of 17 times Ebitda in the past three years. That's roughly double the typical multiple paid in the three years before that.  

Price Hike
Chemical deals are getting more expensive.
Source: Bloomberg
Data reflects the median Ebitda multiple for takeovers of chemical makers valued at more than $1 billion.

BASF certainly could have done a lot worse. ChemChina's bid for Syngenta in February valued the Swiss company at about 17 times its projected Ebitda and Monsanto may seek an even higher valuation from Bayer. That Air Products performance materials division BASF wanted? It went for almost 16 times trailing adjusted Ebitda before accounting for tax benefits. 

Importantly, BASF can easily finance the all-cash purchase and will have no need to significantly increase its debt load, or seek an equity offering -- something investors had been fearful the company might need to do should it seek a mega-merger with the likes of Syngenta, DuPont or Monsanto.   BASF also successfully negotiated a clause that allows it to pay less for the Chemetall business should any surprises arise with regard to pension liabilities, debt or working capital. 

Strategically, it's not a slam-dunk given Chemetall's significant exposure to the growth-challenged European industrial sector, as Bernstein analysts noted in a report Friday.  But Chemetall, which makes surface treatments that help protect metal used in car parts from corrosion, does fit well with BASF's existing coatings division. That business has become more focused on the auto industry after BASF agreed in February to sell its industrial coatings operations to Akzo Nobel for 475 million euros ($530 million).

The acquisition will certainly be a heck of a lot more manageable than a mega-bet on agricultural chemicals, an industry that's also struggling with slower growth as farmers cut back their budgets to cope with weak commodity prices.

BASF CEO Kurt Bock has long reiterated that he will make acquisitions only when the price is right. That's a hard position to stick to when all of your rivals are striking huge deals. But he's held his ground so far, and the strategy seems to be successful.

Which Would You Rather Be?
While Bayer has plunged on concern it's overreaching with its pursuit of Monsanto, BASF has stayed essentially flat.
Source: Bloomberg

Shares of the German chemical giant were essentially unchanged on Friday. In light of the precipitous drop in Bayer's stock after its bold reach for Monsanto, Bock has got to feel pretty OK with that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net