OMNOVA Acquisition A Step Change Transaction
3 July 2019
OMNOVA Acquisition A Step Change Transaction 3 July 2019 - - PowerPoint PPT Presentation
OMNOVA Acquisition A Step Change Transaction 3 July 2019 Disclaimer Relevant Persons) . The Information must not be acted or relied on (i) in the United Kingdom, by persons who are not Relevant Persons and (ii) in any THIS THIS
3 July 2019
Acquisition of OMNOVA - A Step Change Transaction
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Acquisition of OMNOVA - A Step Change Transaction 3
1 Global speciality chemicals company 2 Strong synergy potential 3 Natural strategic fit and extended geographic footprint 4 Market growth potential GDP+ and Blue Chip customer base 5 Attractive transaction multiples pre-and-post synergies 6 Conservatively financed and strong cash flow generation
~1,900 Employees Performance-Enhancing Chemicals for Attractive End-sectors 13 Facilities in 9 Countries ▪ 8 in US ▪ HQ in Ohio Sales in over 90 Countries GDP/GDP+ Growth Potential Strong Technology Focus
Acquisition of OMNOVA - A Step Change Transaction
OMNOVA 2018 Financials
▪ $769.8m Revenue(1) ▪ $86.3m EBITDA(2)
Terms & Valuation
▪ All cash acquisition at $10.15 per OMNOVA share ▪ Represents $824m (approx. £654m(3)) Enterprise Value ‒ 9.9x OMNOVA’s May 2019 LTM Adj. EBITDA(4) ‒ 9.6x OMNOVA’s 2018 EBITDA(2) ‒ Additionally, target of $29.6m annual run-rate pre-tax cost synergies ▪ KLK(5) and the Directors, representing >22% Synthomer ordinary share capital, irrevocably undertake to approve the Transaction
Financing
▪ Fully underwritten rights issue, representing a 30.4% discount to TERP ‒ Gross proceeds of £204m (approx. $257m(3)) ▪ Drawings under new bridge and syndicated debt facilities ▪ Leverage of approx. 2.5x net debt/EBITDA(6) expected at completion ▪ Targeting deleveraging to below 2.0x by end of 2021(7)
Timing
▪ Transaction expected to complete in late 2019 / early 2020 ▪ Subject to approval by Synthomer and OMNOVA shareholders, regulatory approvals and customary closing conditions
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Note: 1. Source: OMNOVA 2018 10-K and related investor presentation 2. OMNOVA’s announced 2018 Adj. EBITDA. Source: OMNOVA Q4 2018 Earnings Release 3. £/$ exchange rate of 1.2595 as at 2 July 2019 4. Based on OMNOVA announced May 2019 LTM Adj. EBITDA of $73.5m plus: pre-acquisition results of Resiquimica (relating to the period from 1 Jun 2018 to 25 Sep 2018, when Resiquimica was acquired by OMNOVA) of $0.9m, pre-tax cost synergies of Resiquimica acquisition (as previously announced by OMNOVA) of $1.1m not yet achieved and pre-tax cost savings of Green Bay disposal (as previously announced by OMNOVA) of $7.7m 5. Kuala Lumpur Kepong Berhad Group 6. Based on estimated net debt following a hypothetical completion date of October 2019 and completion of Rights Issue and the acquisition. Estimated EBITDA for the Enlarged Group is based on OMNOVA’s May 2019 LTM Adj. EBITDA (see footnote 4), Synthomer 2018 EBITDA and estimated 50% of run-rate pre-tax cost synergies for the acquisition. The estimated net debt is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date 7. End of the second full financial year following a hypothetical completion date of October 2019. The estimated leverage is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date
Acquisition of OMNOVA - A Step Change Transaction 5
Transaction Rationale 06 Financial Summary 13 Transaction Timetable 19 Conclusion 22 Appendix 24
Acquisition of OMNOVA - A Step Change Transaction 6
Acquisition of OMNOVA - A Step Change Transaction
▪
2018 Revenue $769.8m(1) and EBITDA $86.3m(1)
▪
Performance-enhancing chemicals for broad range of end-sectors
▪
Significant global positions across two segments: Specialty Solutions and Performance Materials
▪
HQ in Ohio, US; 13 manufacturing sites across North America, Europe and Asia
▪
c.1,900 employees
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58% 21% 20%
Europe Asia & RoW 63% 37% Specialty Solutions Performance Materials 44% 17% 13% 9% 9% 8% Refurbishment & New Construction Transportation Industrial / Other Oilfield Paper & Packaging Personal Hygiene
Revenue by End-Sector(2) Revenue by Geography(2) Revenue by Segment(2)
(4)
Oil & Gas Laminates & Films Specialty Solutions Performance Materials Paper and Carpet Performance Additives Coated Fabrics Business Line Overview Specialty Coatings & Ingredients(3)
Note: OMNOVA financial year end as at 30 November 2018 1. EBITDA defined as OMNOVA’s announced 2018 Adj. EBITDA. Source: OMNOVA 2018 10-K and OMNOVA Q4 2018 Earnings Release 2. Based on OMNOVA 2018 reported revenue. Source: OMNOVA 2018 10-K 3. Includes C.A.ST and Elastomers activities of OMNOVA 4. Includes carpet end-sector
Acquisition of OMNOVA - A Step Change Transaction 8
OMNOVA Key Activities
C.A.ST(3) Oil & Gas Elastomers Performance Additives Paper and Carpet Laminates & Films Coated Fabrics
1. Nitrile Butadiene 2. Styrene Butadiene 3. Coatings, Adhesives & Sealants and Surface Treatment
Synthomer Key Activities
Functional Solutions ▪ Aqueous (acrylic & vinylic based) dispersions Industrial Specialities Performance Elastomers ▪ NB(1) rubber latex ▪ SB(2) rubber latex ▪ High solids SB rubber ▪ Speciality chemical additives ▪ Non-aqueous based chemistry
▪ Attractive positions in niche segments of construction, transport & other sectors ▪ Speciality coatings ▪ Construction ▪ Adhesives & sealants ▪ Textiles ▪ Oilfield ▪ Additives ▪ Additives for gloves ▪ Coatings for speciality paper and packaging ▪ Compounds and carpet
Acquisition of OMNOVA - A Step Change Transaction
Construction & Coatings Textiles & Adhesives Health & Protection Carpet & Foam Paper Specialities Oil & Gas Functional Solutions Performance Elastomers Industrial Specialities
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Synthomer End-Sector Revenue(1) OMNOVA End-Sector Revenue(2) Revenue by End-Sector(1,2,3) Revenue by Division(1,2,3) Synthomer + OMNOVA
£1.6bn £0.6bn
1. Based on Synthomer 2018 reported revenue 2. Based on OMNOVA 2018 reported revenue and £/$ average exchange rate for FY2018 of 1.3410. Source: OMNOVA 2018 10-K 3. Estimated split of revenue 4. Includes carpet end-sector
£2.2bn £2.2bn
(4)
44% 17% 13% 9% 9% 8%
Refurbishment & New Construction Transportation Industrial / Other Oilfield Paper & Packaging Personal Hygiene
26% 16% 19% 12% 13% 14%
Construction & Coatings Textiles & Adhesives Health & Protection Carpet & Foam Paper Specialities
Acquisition of OMNOVA - A Step Change Transaction 10
North America Synthomer + OMNOVA: 9 = # of production facilities / /
Synthomer: 1 OMNOVA: 8
EMEA Synthomer + OMNOVA: 20
Synthomer: 18 OMNOVA: 2
Asia Synthomer + OMNOVA: 9
Synthomer: 6 OMNOVA: 3
1. Based on Synthomer 2018 reported revenue 2. Based on OMNOVA 2018 reported revenue and £/$ average exchange rate for FY2018 of 1.3410. Source: OMNOVA 2018 10-K 19% 58% 23%
Europe Asia & RoW 5% 71% 24%
Europe Asia & RoW 58% 21% 20%
Europe Asia & RoW
OMNOVA(2)
Revenue by Geography
Synthomer(1)
£0.6bn £1.6bn
Synthomer + OMNOVA(1,2)
£2.2bn
Acquisition of OMNOVA - A Step Change Transaction 11
1 Manufacturing Excellence expertise to drive productivity + cost improvements 2 Major global player in water-based polymer solutions 3 4 5 Global geographic coverage with customer proximity Best-in-class process technology/ R&D platform Global Speciality Chemicals Company 6 Strong track record of safe conversion of hazardous feedstocks into water-based polymers Excellent raw materials integration
Acquisition of OMNOVA - A Step Change Transaction 12
Note: OMNOVA financial year end as at 30 November 2018 1. Source: OMNOVA Q4 2018 Investor Presentation & related Q4 2018 Earnings Release, OMNOVA Q4 2017 Investor Presentation & related Q4 2017 Earnings Release 2. OMNOVA announced May 2019 LTM Adj. EBITDA; source: OMNOVA Q2 2019 Earnings Release 3. Includes: pre-acquisition results of Resiquimica (relating to the period from 1 Jun 2018 to 25 Sep 2018, when Resiquimica was acquired by OMNOVA) of $0.9m, pre-tax cost synergies of Resiquimica acquisition (as previously announced by OMNOVA) of $1.1m not yet achieved and pre-tax cost savings of Green Bay disposal (as previously announced by OMNOVA) of $7.7m 4. Source: OMNOVA Q4 2018 Investor Presentation 5. Synthomer estimates
OMNOVA Targeted Sectors Estimated Sector Growth(5)
End-Sector Fit with Synthomer New End-Sectors
OMNOVA EBITDA Development(1)
$82.0m $84.9m $86.3m $73.5m 10.8% 10.8% 11.2%
0.0% 5.0% 10.0% $0.0m $50.0m $100.0m $150.0m
FY2016 FY2017 FY2018 May LTM 2019
$73.5m $75.3m $92.0m
20 40 60 80 100 120 140FY2016 FY2017 FY2018
Specialty Solutions EBITDA Development(1)
CAGR: 2.6% CAGR: 11.9%
▪ May LTM 2019 impacted by: ‒ Strategic decision to exit lower margin/growth commodity paper sector ‒ General economic environment
Estimated Sector Size(4)
Coatings
>$25.0bn
Elastomers
>$10.0bn
Nonwovens
GDP / GDP+ >$25.0bn
Oil & Gas
GDP+ >$5.5bn
Laminates + Coated Fabrics
GDP >$5.0bn
Adhesives
>$20.0bn
Sealants
>$5.0bn Historic Development Medium Term Growth Expectations +
$9.7m(3)
(2)
▪ Growing end-sectors ▪ Greater demand for high performance, high margin products
Acquisition of OMNOVA - A Step Change Transaction 13
Acquisition of OMNOVA - A Step Change Transaction 14
2 July 2019 close 58.1% 60-Day VWAP to 2 July close 56.4% 90-Day VWAP to 2 July close 46.2% 52-Week Avg. to 2 July close 26.0% 52-Week High to 2 July close (3.8%)
Offer Premia
1. Based on OMNOVA's announced 2018 Adj. EBITDA. Source: OMNOVA Q4 2018 Earnings Release 2. Source: OMNOVA Q2 2019 Earnings Release 3. Pre-acquisition results of Resiquimica relating to the period from 1 Jun 2018 to 25 Sep 2018, when Resiquimica was acquired by OMNOVA 4. Resiquimica pre-tax cost synergies (as previously announced by OMNOVA) not yet achieved 5. Green Bay pre-tax cost savings (as previously announced by OMNOVA) not yet achieved 6. Target annual run-rate pre-tax cost synergies
OMNOVA May 2019 LTM Adj. EBITDA
▪ 11.2% 2018 EBITDA margin(1), Specialty Solutions 2018
EBITDA margin pre corporate costs of 18.9%(1)
▪ Target of $29.6m annual run-rate pre-tax cost synergies ▪ Transaction multiples
– 9.9x EV/OMNOVA May 2019 LTM Adj. EBITDA pre- synergies – 9.6x EV/OMNOVA 2018 EBITDA pre-synergies(1) – Highly attractive post-synergies multiples
▪ Offer premia (3.8%)-58.1%
$73.5m $0.9m $1.1m $7.7m $29.6m OMNOVA Announced May 2019 LTM Adj. EBITDA Resiquimica Full Year Effect Resiquimica Cost Synergies Green Bay Cost Savings Transaction Synergies
(3) (6) (5) (4) (2)
`
EBITDA Pre-Synergies
Acquisition of OMNOVA - A Step Change Transaction 15
De-listing & Head Office Cost Savings
(Approx. 50% of run-rate synergies)
Target $29.6m (approx. £23.5m(1)) annual run-rate pre-tax cost synergies
Note: Year 1: end of 2020; Year 2: end of 2021; Year 3: end of 2022 1. £/$ exchange rate of 1.2595 as at 2 July 2019
▪ De-listing ▪ Head Office ▪ IT alignment ▪ Consolidation of group functions
Operational Performance Improvement & Procurement
(Approx. 30% of run-rate synergies)
Regional & Property Efficiencies
(Approx. 20% of run-rate synergies)
▪ Non-manpower fixed cost efficiencies ▪ Logistics optimisation ▪ R&D focus ▪ Raw material scale ▪ Manufacturing optimisation/excellence ▪ Consolidation of regional HQs and sales offices
Target 50% of run-rate to be realised end of Year 1, mostly from de-listing & Head Office cost savings Target run-rate fully realised by end of Year 3 Expected one-off implementation costs of $31.6m (approx. £25.1m(1)) of which $3.6m relates to Capex
Acquisition of OMNOVA - A Step Change Transaction 16
Fully Underwritten Rights Issue
▪
Gross proceeds of £204m (approx. $257m(1))
▪
1 for 4 rights issue at 240p
▪
Discount to TERP: 30.4%
Fully Committed Bank Financing
▪
£1,085m new bridge, term loan and RCF facilities(2)
Committed to Preserving Strong Balance Sheet
▪
Leverage of approx. 2.5x net debt/EBITDA expected at completion(3)
▪
Targeting deleveraging to below 2.0x by end of 2021(4)
▪
Preserves Synthomer’s balance sheet strength
Note: 1. £/$ exchange rate of 1.2595 as at 2 July 2019 2. Comprises a €520m (approx. £466m) bridge facility, $260m (approx. £206m) term loan facility and €460m (approx. £412m) RCF, using £/$ exchange rate of 1.2595 and £/€ exchange rate of 1.1160 as at 2 July 2019. £1,085m excludes a fully committed £200m bridge facility which is not expected to be used following receipt of net proceeds from the Rights Issue 3. Based on estimated net debt following a hypothetical completion date of October 2019 and completion of Rights Issue and the acquisition. Estimated EBITDA for the Enlarged Group is based on OMNOVA’s May 2019 LTM Adj. EBITDA, Synthomer 2018 EBITDA and estimated 50% of run-rate pre-tax cost synergies for the acquisition. The estimated net debt is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date 4. End of the second full financial year following a hypothetical completion date of October 2019. The estimated leverage is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date
Acquisition of OMNOVA - A Step Change Transaction 17
Balance Sheet Investment Opportunities Shareholder Returns
▪
Not to move structurally below 1x EBITDA
▪
Not to exceed 2x EBITDA for a sustained period
▪
Maximum 3x for large acquisitions with deleveraging within 12-24 months
▪
M&A activity – Bolt-on/adjacent chemistry – New geographies – New technology – Consolidation
▪
Capex for growth projects – Capex hurdle rate: payback less than 5 years or 12% IRR
Building Growth Momentum
▪
Ordinary dividend cover 2.5x underlying earnings per share
▪
Periodic assessment of balance sheet strength and investment
▪
Consider one off returns, to maintain balance sheet policy position
Maintain efficient and flexible capital structure over longer term
Source: Company Information
OMNOVA Acquisition
Acquisition of OMNOVA - A Step Change Transaction 18
Accretion
▪ Transaction expected to be earnings accretive by end of Year 1 and strongly accretive thereafter
Deleveraging
▪ Strong cash flow generation profile ▪ Leverage of approx. 2.5x net debt/EBITDA(2) expected at completion ▪ Targeting deleveraging to below 2.0x by end of 2021(3)
Synergies
▪ Target of $29.6m (approx. £23.5m(1)) annual run-rate pre-tax cost synergies ▪ Run-rate synergies: 50% expected to be realised end of Year 1, fully realised end of Year 3 ▪ Expected one-off implementation costs of $31.6m (approx. £25.1m(1))
ROIC
▪ ROIC expected to exceed Synthomer’s cost of capital by end of Year 3
Capital Policy
▪ Transaction in line with conservative capital policy ▪ Existing Synthomer dividend policy to be maintained
Note: Year 1: end of 2020; Year 2: end of 2021; Year 3: end of 2022 1. £/$ exchange rate of 1.2595 as at 2 July 2019 2. Based on estimated net debt following a hypothetical completion date of October 2019 and completion of Rights Issue and the acquisition. Estimated EBITDA for the Enlarged Group is based on OMNOVA’s May 2019 LTM Adj. EBITDA, Synthomer 2018 EBITDA and estimated 50% of run-rate pre-tax cost synergies for the acquisition. The estimated net debt is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date 3. End of the second full financial year following a hypothetical completion date of October 2019. The estimated leverage is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will
Acquisition of OMNOVA - A Step Change Transaction 19
Acquisition of OMNOVA - A Step Change Transaction 20
Announcement Closing Late 2019 / early 2020 2 Rights issue closing 3 OMNOVA shareholder approval 5 Fulfilment of other customary closing conditions Closing after: 1 Synthomer shareholder approval 4 Regulatory approvals
Acquisition of OMNOVA - A Step Change Transaction 21
Expected Timetable and Rights Issue Summary
Announcement of the Transaction and Rights Issue 3 July 2019 Prospectus and Circular published Shortly post announcement Admission and commencement of dealings in nil paid rights on the London Stock Exchange Shortly post publication of Prospectus General Meeting July 2019 Synthomer interim results date 6 August 2019 Expected date of completion Late 2019 / early 2020 Joint financial advisers Barclays / The Valence Group Sponsor and Sole Global Coordinator Barclays Joint Bookrunners and Joint Underwriters Barclays, Canaccord, Citi and HSBC
Acquisition of OMNOVA - A Step Change Transaction 22
Acquisition of OMNOVA - A Step Change Transaction 23
1 Global speciality chemicals company 2 Strong synergy potential 3 Natural strategic fit and extended geographic footprint 4 Market growth potential GDP+ and Blue Chip customer base 5 Attractive transaction multiples pre-and-post synergies 6 Conservatively financed and strong cash flow generation
~1,900 Employees Performance-Enhancing Chemicals for Attractive End-sectors 13 Facilities in 9 Countries ▪ 8 in US ▪ HQ in Ohio Sales in over 90 Countries GDP/GDP+ Growth Potential Strong Technology Focus
Acquisition of OMNOVA - A Step Change Transaction 24
Acquisition of OMNOVA - A Step Change Transaction 25
Chemicals Manufacturing Surfaces Manufacturing Sales, Technology and/or Distribution Sites HQ Auburn, PA Calhoun, GA Columbus, MS Monroe, NC Mogadore / Akron, OH Jeannette, PA Beachwood, OH (HQ) Chester, SC Stafford, TX Akron, OH (Technology Center) Fitchburg, MA London, UK Le Havre, France Villejust, France Rayong, Thailand Singapore Caojing, China Ningbo, China Dubai, UAE Mumbai, India Shanghai, China (Regional HQ) Sintra, Portugal (Resiquimica)
Plus broad distribution network