ELM Elementis Plc

 
TIDMELM 
 
10 February 2017 
 
Elementis significantly increases the scale of its personal care business with 
US$360 million acquisition of SummitReheis 
 
Acquisition adds a high quality business with significant potential for further 
growth in the attractive personal care segment 
 
Elementis plc ("Elementis" or the "Group") today announces that it has entered 
into an agreement to acquire SRLH Holdings, Inc. ("SummitReheis") from an 
affiliate of One Rock Capital Partners, LLC ("One Rock") for an enterprise 
value of US$360 million, (the "Acquisition"). SummitReheis will become part of 
an enlarged personal care business within Elementis. For the year ended 31 
December 2016, SummitReheis is expected to report revenue of US$134 million and 
underlying EBITDA of approximately US$28 million. The acquisition enterprise 
value is equivalent to approximately 11.8x SummitReheis expected underlying 
EBITDA for 2016 (including run rate cost synergies). 
 
SummitReheis is a high quality, high margin specialty chemicals platform that 
produces a range of critical active ingredients and materials tailored for use 
in personal care, pharmaceutical and dental products. SummitReheis' 
anti-perspirant actives business (more than 60 per cent. of its sales) is the 
global leader in the manufacture and sale of active ingredients for 
anti-perspirants and has long standing relationships with key consumer product 
companies across the Americas, Europe and Asia. 
 
Transaction highlights: 
 
  * Acquisition creates an enlarged personal care business with annual sales of 
    approximately US$200 million, significantly increasing the Group's presence 
    in this important end market 
 
  * Enhanced growth potential driven by the combination of complementary 
    products, customers and a broader geographic presence which together offer 
    cross-selling opportunities 
 
  * Critical components for the US$13 billion anti-perspirant market with 
    growth driven by increasing penetration in emerging markets and demand for 
    premium and higher efficacy products in established geographies 
 
  * Acquisition will be funded from cash resources and new debt facilities of 
    US$475 million which will be supported by the cash generation 
    characteristics of the enlarged Group 
 
  * Expected to deliver material earnings accretion and substantial free cash 
    flow accretion in the current financial year 
 
  * Return on invested capital ("ROIC") expected to be in line with Elementis' 
    cost of capital in the first full year of ownership 
 
Notification of Results and Special Dividend: 
 
  * Elementis will report its Full Year Results for the year ended 31 December 
    2016 on 1 March 2017 
 
  * The Board of Elementis can confirm that it expects earnings per share for 
    the year to 31 December 2016 to be in line with current market expectations 
 
  * The Board confirms that its consideration of special dividends in respect 
    of 2016 will not be impacted by the Acquisition 
 
Paul Waterman, CEO of Elementis plc, said: 
 
"At our recent Capital Markets Day presentation, we highlighted the growth 
prospects in personal care as a key opportunity for Elementis, driven by long 
term positive demographic trends and an increasingly sophisticated consumer. 
Our leading position with proprietary hectorite and Rheoluxe® rheology 
modifiers will be augmented by SummitReheis' complementary position in 
specialty additives for anti-perspirants, pharmaceuticals and dental products. 
 
"The Group is well positioned to capitalise on this acquisition through the 
enhanced geographic footprint and strong customer relationships that it brings. 
Together with our existing business, the acquisition of SummitReheis is 
transformative for our personal care business, creating a substantial, high 
return platform that will help accelerate our Reignite Growth strategy." 
 
Strategic rationale 
 
  * Personal care market is a significant growth opportunity for Elementis 
 
  * Anti-perspirants is a highly attractive, growing segment of the personal 
    care market 
 
  * Acquisition creates a US$200 million personal care business of Elementis 
    with critical mass and significant growth prospects 
 
      + Combines SummitReheis' key active ingredients for anti-perspirants with 
        Elementis' enabling technology of hectorites and synthetic polymers 
 
  * Accelerates growth for both SummitReheis and Elementis as a result of the 
    expanded footprint with key customers and broader geographical reach 
 
  * Combined business has strong relationships with key consumer products 
    companies 
 
  * SummitReheis products differentiated by their superior quality and 
    certifications (for example, FDA requirements in the US and ECHA 
    requirements in Europe) 
 
  * Benefits expected from the realisation of additional growth opportunities 
 
Financial highlights 
 
  * Enterprise value of US$360 million on a cash free, debt free basis 
 
  * Immediate adjusted earnings per share accretion expected in the current 
    financial year and double digit adjusted earnings per share accretion in 
    2018 
 
  * Expected to enhance Elementis' group margin in the current financial year 
 
  * Run rate cost synergies of up to US$3 million per annum identified 
 
  * ROIC expected to be in line with Elementis' cost of capital in the first 
    full year of ownership 
 
  * Funded through Elementis' existing cash resources and US$475 million of new 
    debt facilities 
 
  * Elementis to remain prudently financed post acquisition 
 
SummitReheis and Elementis 
 
SummitReheis operates in a highly attractive, growing segment of the personal 
care market. Anti-perspirant products are experiencing growing demand in 
developed markets, particularly the US, driven by demand for premium and higher 
efficacy products. In emerging markets, particularly Latin America, India and 
South East Asia, anti-perspirant products are benefitting from increasing 
market penetration driven by changing lifestyle trends and increased 
discretionary income. SummitReheis' primary manufacturing operations are in 
North America and Europe with approximately 70% of revenue from these markets. 
The combination of SummitReheis with Elementis' global distribution networks 
creates the opportunity to drive growth in emerging markets. 
 
As the leading global producer of active ingredients for anti-perspirants, 
SummitReheis has built long-term relationships with key consumer product 
companies. Elementis' existing personal care business is part of its Specialty 
Products division and supplies hectorite and Rheoluxe® rheology modifiers that 
enhance the effectiveness of SummitReheis' products. SummitReheis will be 
merged with Elementis' existing personal care activities, creating a business 
with approximately US$200 million of annual sales, representing approximately 
25 per cent. of Elementis' pro forma combined sales and in excess of 30 per 
cent. of Elementis' pro forma combined operating profit before amortisation. 
 
Information regarding SummitReheis 
 
SummitReheis' primary focus is the manufacture and sale of aluminium and 
zirconium based active ingredients for anti-perspirant products to global 
consumer products companies. It is the global leader in the fast growing 
anti-perspirant actives ("AP actives") market with locations in the US, Europe 
and Asia. Its technologies provide the base ingredients providing 
sweat-blocking characteristics in all types of anti-perspirant products such as 
aerosols, sticks and roll-ons. Over 60 per cent. of SummitReheis' sales are 
from its AP actives business. 
 
SummitReheis' Pharma Actives business is a leading European producer of the 
active ingredients for indigestion and heartburn remedies. These products have 
similar chemistry and manufacturing processes to the core business and 
long-term customer relationships in the pharmaceutical industry. SummitReheis' 
Specialty Dental business manufactures dental plasters, alloys, discs and 
moulding materials that are used to make dental crowns, bridges, replacement 
teeth and in other applications and has a leading position in Germany. 
 
SummitReheis is headquartered in Huguenot, New York. In June 2015, SummitReheis 
acquired the European AP actives, pharma and dental businesses of B.K. Giulini. 
 
SummitReheis' financial profile 
 
For the year ended 31 December 2015, SummitReheis reported revenue of US$103 
million, EBITDA of US$15 million and operating income of US$8 million. Pro 
forma for a full year contribution from the acquired B.K. Giulini businesses, 
SummitReheis would have reported underlying EBITDA of approximately US$25 
million in the year ended 31 December 2015. As at 31 December 2015, 
SummitReheis had total assets of US$208 million and net assets of US$12 
million. 
 
For the year ended 31 December 2016, SummitReheis is expected to report revenue 
of US$134 million and underlying EBITDA of approximately US$28 million. 
 
Transaction details and timing 
 
Completion of the acquisition is expected to take place in the second quarter 
of 2017 following receipt of anti-trust clearances in the US and Germany. 
 
Elementis intends to fund the acquisition through existing cash resources and 
US$475 million of new debt facilities which will also be used to refinance 
Elementis' existing debt facilities. The new debt will be provided through a 
new fully underwritten US$275 million revolving credit facility and US$200 
million term loan facility. The new debt facilities have a 5 year term and are 
on terms in line with the Group's existing facilities. Elementis will remain 
prudently financed post acquisition. 
 
Conference call 
 
Paul Waterman, Chief Executive Officer, and Ralph Hewins, Chief Financial 
Officer, will hold an analyst and investor call today at 08:30a.m. UK time to 
discuss this announcement. To participate in the conference call, please dial: 
UK +44 (0)20 3139 4830; UK toll free 0808 237 0030 or click here for 
international numbers: http://events.arkadin.com/ev/docs/ 
NE_FEL_Events_International_Access_List.pdf. 
 

The participant PIN code is 33260441#. 
 
A copy of the presentation slides will be available at: 
 
https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID= 
e4da989b68546419fb2a9e73a4634bb83 
 
The event password is: 682839. 
 
Press releases can also be found on the website www.elementisplc.com 
 
For further information on this release please contact: 
 
Financial Advisers 
 
Gleacher Shacklock LLP 
Edward Cumming Bruce / Mark Hammond / Tom Quinn 
T: +44 (0)20 7484 1120 
 
Natrium Capital 
Alasdair Nisbet 
T: +44 (0)20 3574 4635 
 
Media Contacts 
 
FTI Consulting 
Deborah Scott / Matthew Cole 
T: +44 (0)20 3727 1000 
 
Editor's notes 
 
SummitReheis is a leading global specialty chemicals platform that produces a 
range of critical active ingredients and materials tailored for use in personal 
care, pharmaceutical and dental products. The company was founded in 1940 and 
is headquartered in Huguenot, New York, US. 
 
  * SummitReheis' AP actives business is the global leader in the production of 
    active ingredients in anti-perspirant products and accounted for 62% of 
    SummitReheis' pro forma revenue for the year ended 31 December 2015 
  * SummitReheis' Pharma actives business produces sucralfate, antacid pastes 
    and powders which are critical components of regulated pharmaceutical 
    products sold both over-the-counter and with prescription. The Pharma 
    actives business provides ingredients used in antacids and gastrointestinal 
    remedies utilising similar chemistry and manufacturing plant as the AP 
    actives business in Germany. It generated 18% of SummitReheis' pro forma 
    revenue for the year ended 31 December 2015 
  * SummitReheis' Specialty Dental business manufactures dental plasters alloys 
    /discs and moulding materials that are used to make dental crowns, bridges 
    and replacement teeth and in other applications. It generated 20% of 
    SummitReheis' pro forma revenue for the year ended 31 December 2015 
 
Anti-perspirants reduce sweat by a significant amount and deodorants use 
biocides and scent to mask the effects of sweating. SummitReheis' AP active 
ingredients are based on either ACH (Aluminium Chlorohydrate) or ZAG (Zirconium 
Aluminium Glycine). They are used in all of the key types of anti-perspirant 
products: sticks, roll-ons and aerosols. In the US the preferred 
anti-perspirants are sticks whilst in Europe they are aerosols. ACH and ZAG are 
used in most products however ZAG is not used in aerosols. 
 
Elementis' hectorite clays or gels are used in anti-perspirants in conjunction 
with SummitReheis' products. Specifically, the hectorite clays enable the 
effective use of ACH in aerosols, the highest growth application. Hectorite 
acts as a rheology modifier, providing uniformity in application and aiding in 
the suspension of aluminium salts within aerosol anti-perspirants. As well as 
acting as an in-process suspension aid, the use of hectorite also reduces the 
undesirable appearance of armpit staining on shirts. 
 
SummitReheis has strong and long-standing relationships with the top global 
manufacturers of anti-perspirants and deodorants. The AP actives business 
serves a broad customer base from small, regional suppliers to some of the 
leading global personal care manufacturers. The Pharma actives business 
supplies both multinational pharmaceutical companies and regional 
pharmaceutical suppliers selling OTC and prescription antacids. For Specialty 
Dental the business supplies a range of direct customers, distributors and 
agents across varied markets, including dental laboratory equipment, medical 
bandages and 3D printing. 
 
SummitReheis supplies its customers globally. Its revenue is well diversified, 
with 41% in Europe, 33% in North America and 26% in the rest of the world (for 
the year ended 31 December 2015). Its manufacturing operations are in the US, 
Germany, UK and China. It also has plans to build a manufacturing capability in 
Brazil and Thailand. SummitReheis' geographical spread of operations is 
complementary to that of Elementis. SummitReheis employs approximately 270 
people. 
 
 
 
END 
 

(END) Dow Jones Newswires

February 10, 2017 02:00 ET (07:00 GMT)

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