Sika to buy former BASF chemicals company from Lone Star for $6 billion

By John Revill and Brenna Hughes Neghaiwi

ZURICH (Reuters) -Swiss chemicals company Sika has agreed to buy MBCC Group for 5.5 billion Swiss francs ($6 billion) to boost its position in sustainable building, making its biggest ever acquisition in the fragmented $70 billion construction chemicals sector.

Sika said on Thursday it was buying MBCC, the former BASF Construction Chemicals, from an affiliate of private equity firm Lone Star Funds. MBCC’s products include long-lasting flooring systems and admixtures to extend the life of concrete.

“Going forward, we need products for … a sustainable, CO2-reduced footprint in the construction industry. For this, we cannot just modify what we have been doing in the past,” Chief Executive Thomas Hasler told a press conference in Zurich.

Sika has identified sustainability as a major driver in the construction market, as building users seek to extend the life-span of their offices and factories and use materials with lower carbon footprints.

Its shares were up 9.8% by 1143 GMT as analysts welcomed the projected boost to sales and core earnings (EBITDA) from the deal, which is expected to close in the second half of 2022.

The deal “will add about 30% to Sika’s topline and 25% to its EBITDA, thereby making it the undisputed global market leader in construction chemicals,” Vontobel analysts said.

MBCC, based in Mannheim, Germany, expects 2021 sales of 2.9 billion Swiss francs.

The move for MBCC represents a step change for Sika, which has already bought seven small companies in China, Mexico, the United States, Japan, Brazil and Russia this year.

Sika, whose products are used in areas such as waterproofing, is stepping up acquisitions, aiming to increase its share of the construction chemicals market from around 10% now to 12% by 2025.

It expects that market to increase to around 80 billion francs per year by 2025 from 70 billion francs currently, with government stimulus programmes and trends towards more sustainable building fuelling a global infrastructure boom.

Baader Helvea analyst Markus Mayer was surprised Sika was buying the former BASF business for a 64% uplift to the price Lone Star paid in 2019, after Sika had at the time flagged several weak points of the business.

“To turn around the weak spots of MBCC will be one of the most challenging tasks for Sika,” Mayer said. “In contrast, the integration track record of Sika is very strong and therefore if anyone can turn around the business it might be Sika.”

The deal represents a multiple of 11.5 times MBCC’s expected 2022 EBITDA, Sika said. Sika expects to achieve synergies of 160–180 million francs, bringing the multiple down to 8.5.

It will finance the deal, which it expects to be “strongly accretive” to earnings per share from the first full year after closing, with a bridge loan.

Bank of America advised Sika on the deal.

($1 = 0.9127 Swiss francs)

(Reporting by John Revill, Brenna Hughes Neghaiwi and Oliver HirtAdditional reporting by Paul ArnoldEditing by Susan Fenton and Mark Potter)

By John Revill and Brenna Hughes Neghaiwi

ZURICH (Reuters) -Swiss chemicals company Sika has agreed to buy MBCC Group for 5.5 billion Swiss francs ($6 billion) to boost its position in sustainable building, making its biggest ever acquisition in the fragmented $70 billion construction chemicals sector.

Sika said on Thursday it was buying MBCC, the former BASF Construction Chemicals, from an affiliate of private equity firm Lone Star Funds. MBCC’s products include long-lasting flooring systems and admixtures to extend the life of concrete.

“Going forward, we need products for … a sustainable, CO2-reduced footprint in the construction industry. For this, we cannot just modify what we have been doing in the past,” Chief Executive Thomas Hasler told a press conference in Zurich.

Sika has identified sustainability as a major driver in the construction market, as building users seek to extend the life-span of their offices and factories and use materials with lower carbon footprints.

Its shares were up 9.8% by 1143 GMT as analysts welcomed the projected boost to sales and core earnings (EBITDA) from the deal, which is expected to close in the second half of 2022.

The deal “will add about 30% to Sika’s topline and 25% to its EBITDA, thereby making it the undisputed global market leader in construction chemicals,” Vontobel analysts said.

MBCC, based in Mannheim, Germany, expects 2021 sales of 2.9 billion Swiss francs.

The move for MBCC represents a step change for Sika, which has already bought seven small companies in China, Mexico, the United States, Japan, Brazil and Russia this year.

Sika, whose products are used in areas such as waterproofing, is stepping up acquisitions, aiming to increase its share of the construction chemicals market from around 10% now to 12% by 2025.

It expects that market to increase to around 80 billion francs per year by 2025 from 70 billion francs currently, with government stimulus programmes and trends towards more sustainable building fuelling a global infrastructure boom.

Baader Helvea analyst Markus Mayer was surprised Sika was buying the former BASF business for a 64% uplift to the price Lone Star paid in 2019, after Sika had at the time flagged several weak points of the business.

“To turn around the weak spots of MBCC will be one of the most challenging tasks for Sika,” Mayer said. “In contrast, the integration track record of Sika is very strong and therefore if anyone can turn around the business it might be Sika.”

The deal represents a multiple of 11.5 times MBCC’s expected 2022 EBITDA, Sika said. Sika expects to achieve synergies of 160–180 million francs, bringing the multiple down to 8.5.

It will finance the deal, which it expects to be “strongly accretive” to earnings per share from the first full year after closing, with a bridge loan.

Bank of America advised Sika on the deal.

($1 = 0.9127 Swiss francs)

(Reporting by John Revill, Brenna Hughes Neghaiwi and Oliver HirtAdditional reporting by Paul ArnoldEditing by Susan Fenton and Mark Potter)