Set to acquire leading player in niche field; BUY
PCHEM announced it had entered into a conditional SPA for the purchase
of Perstorp Holdings AB for a total cash outlay of MYR10.5b. If successful,
this will mark its’ second inorganic acquisition (following purchase of BRB
Group/Da Vinci for c.MYR762m in 2019) in the high-barrier, high-margin
specialty chemical space – in-line with mgmt’s 2030 aspiration of deriving
at least 30% of revenue from its non-traditional (O&D/F&M) portfolio.
Pending a mgmt update later today, we maintain our earnings forecasts,
BUY call and TP of MYR11.20 (pegged to 9x EV/EBITDA, at the LT Mean).
The target company in a nutshell
Perstorp Holdings AB is a leading Swedish specialty chemicals player with
expertise in the niche markets for resins & coatings, engineered fluids and
animal nutrition. It currently holds the top spot in terms of global sales
for c.50% of its existing portfolio of 130 products (inc. Penta and TMP) and
has an established presence in 26 countries throughout the US, Europe and
APAC. It currently employs 1,500 people globally and has 7 production sites
as well as 3 R&D facilities with a combined capacity of 2.3m TPA.
Total acquisition outlay could rise to MYR10.7b
Per the terms of the SPA, PCHEM will acquire Perstorp for an “Agreed EV”
(on a willing buyer-seller basis) of EUR2.3b (MYR10.5b), to be satisfied
wholly in cash. The “Agreed EV” consists of: (i) a base purchase price of
c.MYR7b for 100% equity interest (or 50m shares) in Perstorp, (ii) a
commitment by PCHEM to repay the entirety of Perstorp’s outstanding net
debt obligations as at the SPA’s close (c.MYR3.5b as of 31 Dec 21), and (iii)
a potential “earn-out” payment of MYR205m pertaining to Perstorp’s new
plant in Sayakha, India, upon the fulfilment of certain preconditions.
Acquisition likely to be synergistic, value-accretive
Despite the purchase price valuing Perstorp at a T12M EV/EBITDA multiple
of 8.3x (vs. PCHEM’s current T12M EV/EBITDA of 7.7x), we deem the
acquisition reasonable as 10 comparable precedent transactions (Fig. 1)
btw 2016-21 (ranging from 6.9x to 15.7x) averaged 11.1x. Crucially, we
opine Perstrop’s synergistic integration as a wholly-owned subsidiary to be
value-accretive as it will expand PCHEM’s nameplate capacity by 18% and
boost EBITDA/PATMI by 14%/6% (based on FY21A). Owing to PCHEM’s endDec net cash pile of MYR14b, the transaction will also be non-dilutive.