The Urethane Blog

Covestro Closes Divestiture

Covestro sells PU business to private equity’s HIG


Covestro AG has completed the sale of its European polyurethane systems house business to a U.S. private equity firm, and the new business now has a new CEO and a new name: Plixxent.

“We have been working for more than four months to carve out the businesses from Covestro,” explained its CEO Jorg Schottek at an airport hotel in Hamburg, Germany, with Urethanes Technology International.

Plixxent is not a name that trips off the tongue, but it is not designed to.

Schottek has spent three years working with venture capitalists H.I.G. Capital of Miami. Initially, he was helping them to understand the business before managing the purchase process. Once the deal completed on Nov. 4, he became CEO.

The high-double-digit-million-euro sale is part of Covestro’s portfolio optimization bid, and includes facilities in the Netherlands, Denmark, Spain, Germany and further businesses in Italy.

System houses offer tailor-made polyurethane systems for customers.

Schottek has a core goal: To weld the individual entities into a business that can grow its sales from 250 million euros ($278.8 million) to 400 million euros ($446.2 million) in five years. His strategy is to use a single sales team cross-selling the expertise within the group and, possibly, some acquisition activity. But, he said, the focus will very much be on organic growth and filling in the gaps between the businesses.

Apart from the Spanish business, which was deliberately built as a systems house, the other parts of Plixxent were bought and run independently. The businesses that form the new company typically handle smaller volumes, and those businesses with customized products are relatively complex, Schottek said.

“This makes it challenging for a large company which is, naturally, more focused on larger volumes and standardized products,” he added.

This comes through in his description of the carve-out process.

“We have had to implement a completely new IT structure, computers, servers must be new from day one,” he said. “As a consequence of the carve-out, we also had to build a new back office structure at a group level.”

In total, the Plixxent business had contracts to supply customers with about 100 kilotonnes per year at the point of the spin-off. The move simplifies matters for Covestro, which is more focused on larger accounts.

“We are independent, and have a strong relationship with Covestro to source raw materials,” he said. “Customers should know that our raw material supply is 100 percent assured. We can source from other suppliers, too. This will help customers because we can offer them a broader portfolio of materials.”

Plixxent includes plants in Tarragona, Spain; Foxhol, Netherlands; Oldenburg, Germany; and Otterup, Denmark. There is also a sales office in Italy.

“We are planning to keep the individual approaches and use the core manufacturing, technology and service competences in each region,” Schottek said. “But we are looking to significantly strengthen our sales force across our regions. We will have four plants producing different materials with a sales force operating across markets and customers.”

He added that the sales team will look for opportunities and make sales across the whole portfolio. “We have experts on different segments,” he said. “There are a lot of opportunities to grow organically.”

This organic growth is likely to be achieved by asking what share of the polyurethane market a type of product has, and then striving to match the sales to that share in each country. This will be done by a larger, technically competent workforce which will sell the groups portfolio of products. Italy is the front runner for expansion.

“Looking at Europe in general, we will try to increase our sales organically, but we will also look at opportunities for acquisitions. For example, Italy is the second biggest market, and what we see is a lot of small, family-owned customers that need technical service. It is highly attractive for us,” he said.

H.I.G. has invested in nine other chemical-related groups in the past decade. Schottek said.

“We are excited to work with such an experienced investor,” he added. “Together we will target growth for Plixxent, organically and via M&A.”

H.I.G. has a buy-and-build approach toward its investments, which are mainly directed at the small and mid-sized business segment.

The company, according to Covestro, intends to further develop its pan-European presence and to build a strong and independent European group of polyurethane systems houses with a clear focus on mid-sized customers.