Univar to acquire rival distributor Nexeo for $2 billion

22:14 PM | September 17, 2018 | Vincent Valk

Univar has agreed to acquire rival Nexeo for $2 billion creating a distribution giant with about $12.5 billion/year in sales. The $11.65/share price represents a 14% premium on Nexeo’s closing price of $10.04/share on 14 September. The deal values Nexeo at an EBITDA multiple of 9.4 times based on estimated 2018 results. TPG and First Pacific, Nexeo’s two key shareholders, have consented to the transaction. It is expected to close in the first half of 2019.

The acquisition moves Univar closer to Brenntag, but the latter will still be the world’s largest chemical distributor by sales after the deal closes. Brenntag reported full-year 2017 sales of about $14.1 billion, with EBITDA of about $1 billion. Univar and Nexeo combined will generate about $843 million/year in EBITDA.

Nexeo shareholders will receive 0.305 shares of Univar common stock, plus $3.29 in cash, in conjunction with the deal. This represents a consideration consisting of 72% equity and 28% cash, although the final figures could change depending on Nexeo’s share price when the transaction closes. The acquisition will be paid for with a combination of cash and debt, with a $1.3 billion financing commitment already in place.

Consolidation has been a key theme in the chemicals distribution sector for some time. Some 46 M&A transactions were completed in distribution during 2017, according to DistriConsult (Wadenswil, Switzerland), a consultancy. Mostly, this has entailed larger distributors, such as Univar, Nexeo, and Brenntag, buying up much smaller competitors. The Univar-Nexeo deal alters this dynamic, as while Univar is clearly the larger company, Nexeo is among the still-fragmented sector’s biggest players. IMCD and Azelis, two other large distributors, have also made strings of acquisitions.

The combined Univar and Nexeo will have North America’s largest salesforce in chemicals distribution and “the broadest product offering,” says Univar president and CEO David Jukes. “We expect the transaction to be accretive to earnings and cash flow beginning in the first full year post closing and to generate $100 million of annual run rate cost savings by the third year following close and reduce annual capital expenditures by $15 million immediately,” Jukes adds. Scaling up the use of Univar’s digital commerce system and Nexeo’s finance and relationship management systems are expected to help cut costs, he says.

Integrating the two companies is expected to result in a one-time cost of $150 million. This will be offset by sales of surplus real estate and improvements to working capital, according to Univar.

Nexeo will help grow Univar’s business in the personal care and lubricants markets in North America, and will add new suppliers to Univar’s existing slate, Jukes says. Univar, meanwhile, has products in inorganic chemicals that Nexeo lacks, he adds.

Selling plastics?

Univar will, as it works to close the acquisition, hire an outside advisor to explore alternatives for Nexeo’s plastics distribution business, including a potential divestiture. Univar has generally avoided plastics distribution, and says it is “[focused] on chemicals and ingredients distribution.” The review is expected to be complete when the transaction closes.

The plastics distribution business, which focuses on prime thermoplastic resins and related products, accounts for around 10% of the combined revenue of Univar and Nexeo. It has customers in manufacturing, molding and design. Without plastics, Univar and Nexeo’s combined revenue would total about $10.5 billion.

“We haven’t been in plastics because we’ve chosen not to be there,” Jukes says. “There is something like 1-2% overlap in customers between Nexeo’s plastics and chemicals businesses.” The assets of the chemicals and plastics businesses are mostly separate, and the chemicals business operates predominantly in North America, according to Jukes.

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