Covestro to acquire Coating Resins Business of DSM

Covestro AG (a German company specialized in producing premium polymers) recently announced that it is going to acquire the Resins and Functional Materials (RFM) business from Royal DSM, which is a global science-based company in Health, Nutrition, and Sustainable Living, for an equity value of EUR 1.6 billion.

As per Dr. Markus Steilemann, CEO of Covestro, this acquisition is an important step for their corporate strategy. He believes that by combining the strong innovation capabilities, sustainable product portfolios coupled with complementary technologies and customer industries, Covestro can unlock significant value and at the same time, it can drive innovation for the transition towards a circular economy, faster.

This transaction will also include the DSM Additive manufacturing (it was one of the first firms that started offering third party materials for additive manufacturing systems and applications) and sustainable coating resins related businesses. The RFM division provides highly specialized and market-leading products such as resins that are used in paints and other industrial applications, and optical fibre coatings (which includes DSM Niaga, a Volatile Organic compound (VOC)-free adhesive and proprietary production technology for fully-recyclable carpets, mattresses and furniture components). The optical fibre market has enormous future potential, including in 5G technology and 3D printing materials, which is having a significant growth rate.

According to the Co-CEOs, Geraldine Matchett, and Dimitri de Vreeze, this deal delivers strong value to DSM and it is strategically attractive for all parties. They believe that Covestro shares similar views on culture and the values of sustainability and it will be a good owner of these businesses for colleagues, customers, and other stakeholders. These businesses combined represented EUR 1,012 million of DSM 2019 annual net sales and EUR 133 million of DSM 2019 total EBITDA, i.e., Earnings Before Interest, Taxes, Depreciation, and Amortization. DSM expects a book profit on this transaction upon closing. The company expects to receive approximately EUR 1.4 billion net in cash, including repayment of its RFM business’s net debt, and after paying transaction costs and capital gains tax.

The acquisition diversifies industry exposure of Covestro and strengthens its positioning in an attractive high-growth market. Covestro is one of the leading providers of water-based polyurethane dispersion and with the acquisition of RFM, it will add a complete range of water-based polyacrylate resins and will expand its technology portfolio to include powder coating resins and radiation curing resins. By expanding its product portfolio in the market (for sustainable coating resins), Covestro is taking a significant step and it will help in its long-term corporate strategy to strengthen its sustainable and innovation-driven businesses. The integration of RFM is a substantial growth opportunity for Covestro to expand its revenues of the Coatings, Adhesives & Specialities (CAS) segment by more than 40% and it will also become one of the leading suppliers of optical fibre coatings. This will also improve the geographical footprint of Covestro and its proximity to its customers in all the key markets. It is expanding its global production network by more than 20 sites.

Both businesses are committed to an ambitious Environmental, Social and Governance (ESG) goals and have excellent and complementary research facilities, especially in the area of sustainable high-performance raw materials that are used in the coatings industry. This deal will allow Covestro to be even more innovative in the field of coating resins and become an attractive R&D partner for its customers.

Dr. Thomas Toepfer, Covestro CFO, and Labor Director say that this acquisition is a strategically and financially perfect opportunity for Covestro to pursue its growth strategy at highly attractive conditions and tangible synergies. The company expects permanent synergy effects to build-up to about 120 million euros per annum by 2025. The transaction is expected to complete in H1, 2021.