Elementis plc (LON:ELM), a global specialty chemicals company, today announced that it has reached an agreement in principle in relation to the proposed acquisition of Mondo Minerals B.V. known as “Mondo” a leading integrated producer of industrial talc additives. The Acquisition and the entry into the transaction documentation is subject to Mondo having completed the customary consultation procedures with its works council.
The offer price values Mondo at an enterprise value of $600 million on a cash free, debt free basis and represents a multiple of 13.1 times 2018 year to date EBITDA¹.
Mondo is a leading integrated producer of industrial talc additives currently owned by Advent International. Through the transformation of its high quality, long duration talc resources via proprietary flotation process know how and formulation expertise, Mondo creates reliably uniform and high purity additives, and has a strong track record of growth. In 2017 Mondo generated revenues of EUR 122 million and EBITDA of EUR 31 million with an EBITDA margin of 25%. The Company believes Mondo’s business has attractive growth prospects and is showing good momentum in the current year.
The Company believes that the Acquisition represents an exceptional opportunity for Elementis to strengthen its position as a leading additives company underpinned by sustainable competitive advantages and significant growth opportunities. The key rationale for, and the benefits of, the Acquisition include:
o Structurally advantaged business model: Mondo enjoys a differentiated and sustainable market position based on its integrated operations, combining high quality, long duration talc resources, and a leading cost position based on optimised production and logistical capabilities.
o Consistent premium quality: State of the art proprietary flotation process know-how and formulation expertise enable Mondo to deliver superior product quality and consistency of talc additives at scale for high value applications.
o Resilient high growth end markets: Mondo supplies talc additives to a wide range of industrial sectors, including coatings and long life plastics. Revenue from industrial applications has grown at a 9% CAGR since 2009, and Mondo is well positioned for future growth.
o Attractive financial returns: Mondo’s strength of competitive position and product quality have delivered highly attractive financial returns (25% EBITDA margin in 2017) and the Acquisition is expected to be immediately margin accretive for Elementis
o A complementary combination: With a business model that mirrors Elementis’ hectorite operations, the Company believes there are opportunities to leverage Elementis’ expertise across the value chain and enhance Mondo’s ability to serve high end talc markets.
The financial effects of the Acquisition are anticipated to be:
o Immediately accretive to Elementis’ EBITDA margins;
o Accretive to adjusted earnings per share in the first full year of ownership;
o Post tax return on invested capital associated with the Acquisition is expected to exceed Elementis’ weighted average cost of capital in the fourth full year of ownership;
o The Board expects to be able to maintain Elementis’ existing dividend policy following completion of the Acquisition, underpinned by the strong cash generation and attractive future prospects of the enlarged Group; and
o The enlarged Group is expected to be levered at approximately 2.75x net debt/EBITDA upon completion of the Acquisition, assuming the Rights Issue (as defined below) completes and bank facilities are drawn, with a strong combined cash flow generation expected to drive a material deleveraging profile thereafter.
Financing and expected timetable
The Acquisition (together with transaction expenses), existing debt of the Group and Mondo (which are to be refinanced), and the funding of the enlarged Group going forwards, are all expected to be financed by a rights issue (the “Rights Issue”) to raise approximately $280 million (which has been fully underwritten on a standby basis) and new committed debt facilities of $775 million (the “New Debt Facilities”).
Due to its size, the Acquisition is categorised as a Class 1 transaction under the Listing Rules of the Financial Conduct Authority (the “Listing Rules”) and is therefore subject to the requirements of a Class 1 transaction, including being conditional upon the approval of Elementis’ shareholders.
Elementis expects to publish a shareholder circular (the “Circular”), including a notice of general meeting, in connection with the Acquisition and the Rights Issue, and a prospectus (the “Prospectus”) in connection with the Rights Issue in August 2018. Completion of the Acquisition and the Rights Issue are expected by the end of the third quarter of 2018.
Commenting on the acquisition, Elementis CEO, Paul Waterman, said:
“This is a very compelling opportunity for Elementis and an exciting step in the development of the business. Since we launched the Reignite Growth strategy at the end of 2016, Elementis has been on a journey to transform its portfolio and focus on high value growth businesses with structural competitive advantages and attractive financial characteristics. Mondo is an excellent fit and we see significant opportunities to apply Elementis’ global knowledge, scale and relationships to unlock additional value and further growth.”
Notes
¹ Based on actual January to May 18 EBITDA (annualised) including the full run rate of modest pre-tax cost synergies.
