Annual Report 2016DEENCN
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Connecting with the Future:
Evonik Acquires Businesses

EVONIK IS STRATEGICALLY EXPANDING ITS BUSINESS OPERATIONS IN IMPORTANT GROWTH MARKETS WITH TWO TRAILBLAZING ACQUISITIONS IN NORTH AMERICA. THE GROUP IS THUS EXPANDING ITS INTERNATIONAL SCOPE AND PUTTING ITS BUSINESS ACTIVITIES ON A BROADER FOUNDATION.

At Evonik, the year 2016 was characterized by external growth. The Group made a major acquisition in May, when it bought the specialty additives business of the US company Air Products. At a cost of about US$3.8 billion, Evonik is taking over Air Products’ specialty additives business, which is distinguished by its steady growth and extremely attractive profit margins. This acquisition makes Evonik one of the leading global suppliers of specialty additives, not only in Europe but also in Asia and the Americas. Specialty additives are used in industrial cleaners, adhesives, and car paint, among other applications.

Specialty additives are used in car paints, among other applications.

Evonik, whose headquarters are in Essen, also announced another acquisition at the end of 2016. For about US$630 million, it is taking over the silica business of the family-owned US company J. M. Huber. Both of these acquisitions complement Evonik’s existing portfolio perfectly. Both businesses have EBITDA margins of more than 20 percent, are expanding Evonik’s presence in important growth markets, and are enhancing the Group’s innovative strength. “These deals are giving a big boost to the future development of our growth segments Nutrition & Care and Resource Efficiency,” says Thomas Hermann, the Head of Corporate Strategy.

His team is constantly on the lookout for possible acquisition candidates in the global markets. A key criterion in the search is the candidate’s compatibility with Evonik’s strategy. Appealing regions, powerful innovation capability, and a culture that matches the Group’s creative self-image are additional requirements for capturing the attention of Hermann’s team. “A company that we buy has to fit in perfectly with Evonik’s growth strategy,” says Hermann. This growth strategy rests on three pillars: innovations, organic growth through investments, and external growth through acquisitions.

For example, in the coatings and adhesives market, Evonik is a leading supplier of crosslinkers for coatings. This market is growing by leaps and bounds. Evonik noted this trend and commissioned a plant for producing isophorone and isophorone diamine in Asia in mid-2014. The company invested over €100 million in order to be able to produce an additional 50,000 tons of these chemicals annually. The business is running well. In 2015 there was a significant increase in crosslinker sales, and this trend continued in 2016. Thanks to the acquisition of Air Products’ specialty additives business, the two teams can now work together to exploit synergies and analyze further growth opportunities. The Americans are bringing additional know-how into these business operations. Thanks to their formulations, they are the global leaders in the epoxy hardener industry.

The market for adhesives and crosslinkers is also important for Evonik.

Another example is the global silica business. For more than five years, Evonik has systematically implemented a targeted investment program in order to expand its capacities, especially regarding precipitated silica for fuel-efficient and environmentally friendly low rolling-resistance tires. Shortly before Christmas, the Executive Board and the management laid the foundation stone for a new major production facility in southeastern USA. A few months before that, a new facility had been commissioned in Brazil. Since 2010, Evonik has expanded its production capacity by more than 40 percent for precipitated silica alone. The key driver of this expansion is the growing demand for low rolling-resistance tires. Through its planned acquisition of J. M. Huber’s silica business, Evonik now aims to expand its business with applications in the area of consumer goods. J. M. Huber’s silica business is one of the leading suppliers of silicas for toothpaste.

With silicas for toothpaste, Evonik is expanding its business with applications in the area of consumer goods.

The acquisition of Air Products’ specialty additives business and J. M. Huber’s silica business is expected to increase Evonik’s sales by more than €1 billion. The conclusion of Evonik’s acquisition of the Air Products business at the end of 2016 marked the beginning of the integration process. In fiscal 2017, this business is expected to bring in about €250 million in earnings. The acquisition of J. M. Huber should be concluded in the course of this year. The best assurance that the integration of diverse business activities and companies into an industrial group can be quick and successful is the long corporate history of Evonik itself.