Synthomer Plc - Acquisition

SYNTHOMER PLC

PROPOSED £654 MILLION ACQUISITION OF OMNOVA SOLUTIONS INC. AND £204 MILLION RIGHTS ISSUE

A STEP CHANGE TRANSACTION CREATING A GLOBAL SPECIALITY CHEMICALS COMPANY AND ENHANCED SHAREHOLDER VALUE

Synthomer plc ("Synthomer" or the "Company"), a FTSE 250 speciality chemicals company, and one of the world's major suppliers of aqueous polymers, is pleased to announce that it has reached an agreement with OMNOVA Solutions Inc. ("OMNOVA"), which develops, manufactures and markets polymers, dispersions, elastomers and other speciality chemicals, on the terms of a recommended acquisition of the entire issued and to be issued share capital of OMNOVA at a price of US$10.15 per OMNOVA Share (the "Acquisition").

Strategic Highlights

·    Creation of a global speciality chemicals company with greater scale and a strong platform from which to invest in future growth.

·    Strong synergy potential with target run-rate pre-tax cost synergies of US$29.6 million per annum by the end of the third year following completion of the Acquisition ("Completion").

·   Natural strategic fit with complementary chemistries and end market presence as well as materially strengthening Synthomer's footprint in North America and increasing its presence in Europe and Asia.

·    Increased exposure to markets offering GDP+ growth and blue chip customer base.

Financial Summary

·  Acquisition values OMNOVA's entire issued and to be issued share capital at US$473 million (approximately £375 million), with implied enterprise value of US$824 million (approximately £654 million).

·    Acquisition represents an enterprise value multiple for OMNOVA of 9.9 times OMNOVA's May 2019 LTM Adjusted EBITDA before Acquisition-related synergies and 9.6 times OMNOVA's FY2018 EBITDA.

·    Attractive post-synergy multiple with target run-rate pre-tax cost synergies of US$29.6 million per annum by the end of the third year following Completion.

·    Conservatively financed Acquisition with an estimated leverage of approximately 2.5x net debt / EBITDA expected at Completion with strong cash flow generation driving expected deleveraging to below 2.0x by the end of the second full financial year following Completion.

·   Earnings accretion expected in the first full financial year following Completion and strongly accretive thereafter.

Transaction Rationale

The Directors believe the Acquisition represents an attractive opportunity for Synthomer to strengthen its global position as a major speciality chemicals company underpinned by significant growth opportunities.

·   Strong strategic fit with the Acquisition creating a global speciality chemicals company with greater scale and a strong platform from which to invest in future growth: Following the Acquisition, the Company and its subsidiaries (the "Enlarged Group") will benefit from increased scale becoming a major global player in water-based polymer solutions, having greater customer reach and strong operational capabilities, and will be in a stronger position to invest in growth, innovation, and people.

·    Expansion and diversification of product portfolio into new attractive end-sectors: The Acquisition will broaden and strengthen Synthomer's current portfolio with entry and/or increased exposure to attractive end-sectors, most particularly the oil and gas drilling, cementing and stimulation sectors. Following the Acquisition, the Enlarged Group will have the ability to leverage OMNOVA's brand recognition and technical expertise in new application areas.

·    Enhanced focus on speciality products supported by strong R&D and innovation capabilities: OMNOVA's focus on commercial excellence, innovation and inorganic growth initiatives in its Specialty Solutions segment has led to the development of over 60 products in the past three years and will allow Synthomer to bolster its speciality products offering by leveraging the Enlarged Group's best-in-class process technology and R&D platform.

·    Global geographic coverage with increased customer proximity and access to attractive international markets: The Acquisition will materially strengthen Synthomer's presence in North America, as well as increase its presence in Europe and Asia, including further penetration into the high growth Chinese market.

·    Ability to leverage manufacturing excellence expertise to drive productivity and cost improvements: Synthomer intends to utilise best practices from across the Enlarged Group to improve productivity and reduce costs. The Enlarged Group will benefit from excellent raw materials integration and Synthomer's strong track record of safe conversion of hazardous feedstocks into water-based polymers.

Synergies and Financial Effects of the Acquisition

·   The Acquisition is expected to result in estimated recurring run-rate pre-tax cost synergies of US$29.6 million per annum by the end of the third year following Completion.

·    The Acquisition is expected to be earnings accretive in the first full financial year following Completion and strongly accretive thereafter.

·    Synthomer's return on invested capital associated with the Acquisition is expected to exceed its cost of capital in the third full financial year following Completion.

·    The Acquisition will be conservatively financed with an estimated leverage of approximately 2.5x net debt / EBITDA expected at Completion with strong cash flow generation driving an expected deleveraging to below 2.0x by the end of the second full financial year following Completion.

Financing and Expected Timetable

·    The Company intends to finance the Acquisition and related fees and expenses from the gross proceeds of a rights issue of up to £204 million (approximately US$257 million) (the "Rights Issue"); and drawings under new debt facilities.

·   The Acquisition constitutes a Class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval of Synthomer shareholders. Accordingly, a General Meeting will be convened to approve the Acquisition and further details, including the notice of the General Meeting, will be set out in a circular that will be sent to shareholders in July 2019 (the "Circular").

·    In addition, Synthomer shareholders will be asked to approve an increase of the borrowing limit set out in the Articles of Association from £750 million to £1,500 million to enable the Company to finance the debt consideration.

·    Assuming satisfaction or waiver of all conditions to the Acquisition, Completion is expected to take place in late 2019 / early 2020.

Commenting on today's announcement, Calum MacLean, Chief Executive of Synthomer, said:

"This transaction is an important step in the continued execution of Synthomer's strategy with an acquisition that is both strategically and financially compelling. The acquisition of OMNOVA represents an attractive opportunity to materially expand our international business into North America and expand our presence in Europe and Asia, creating a global speciality chemical company. 

The Acquisition provides an attractive financial profile with significant expected synergy benefits. Synthomer has been disciplined waiting for the right opportunity to deliver value through our inorganic growth strategy and this acquisition will provide an additional platform for Synthomer to continue to grow into the medium term.

I am delighted to welcome OMNOVA employees to the business and look forward to working with them to take the combined business to the next level. "