INTERVIEW: Caldic/Connell Merger to Create a Global Leader in Specialized Distribution – Advent
NEW YORK (ICIS) – The planned merger between Caldic, focused on Europe and the Americas, and Connell, focused on Asia, will create a 3 billion euro global leader in the distribution of ingredients and chemicals specialty, leveraged in high-growth emerging markets, said a senior executive at Caldic owner Advent International. .
Upon expected closing of the deal in the first quarter of 2023, private equity firm Advent International will retain a majority stake in the combined company retaining the Caldic name, with Connell owner Wilbur-Ellis taking a minority stake in Caldic.
The transaction, which will create a global distributor with nearly €3 billion in revenue, will be an all equity deal with no debt financing required – an important aspect as such financing is highly contested today.
“It will reduce overall leverage because we are merging them without debt,” Ronald Ayles, managing partner at Advent International, said in an interview with ICIS.
The deal builds on the merger between Latin American retailer GTM, which Advent has owned since 2014, with Dutch retailer Caldic, which Advent acquired from Goldman Sachs Asset Management in March 2022.
The Caldic-GTM deal added a large Latin American footprint to Caldic’s existing operations – primarily in Europe and North America, with some presence in Asia-Pacific – and boosted sales to around 2.3 billion euros.
BRIDGING THE GEOGRAPHIC GAP IN ASIA
“The geographic gap we had was in Asia. With Connell being purely Asia focused and very important, we are effectively filling this gap without dis-synergies and making it a truly global offering for our constituents and clients,” said Ayles, who also emphasized that Connell is only one of two pan-Asian chemical distributors.
On a geographic basis, the new Caldic will be well balanced, with 31% of sales in the EU, 31% in Latin America, 25% in Asia-Pacific and 13% in North America, according to Advent.
“That’s where the synergies are, so you can cross-sell a lot and have a global reach. We will be one of the top three specialty chemical distributors in the world,” Ayles said.
On an end-market basis, the combined company will achieve approximately 50% of sales in industrials, 30% in food, 12% in pharmaceuticals and 9% in health and personal care.
“It’s about building a global market leader in real specialties. The only thing that differentiates us is that we are too focused on higher growth emerging markets and more stable life sciences and food end markets,” Ayles said.
“This is a deliberate choice as we see, over the longer term, more benefit in exposure to emerging markets. There is higher growth and also more opportunities for penetration as larger companies outsource more. There is more need for pan-Asian and pan-Latin American distributors with capabilities in these regions,” he added.
Specialist solutions for industrial markets such as CASE (coatings, adhesives, sealants and elastomers) and additives are also important and form a core part of the portfolio, he noted.
“We don’t want to diversify too much, but we’re pretty well positioned with the new mix,” he added.
RESILIENCE IN VOLATILITY
Caldic, like the overall chemical distribution market, has been more resilient to deteriorating global economic conditions.
“Chemical distribution is less capital intensive and energy efficient. These supply chain dislocations and shifts in cost curves actually benefit distributors,” Ayles said.
This is due to better access to global raw materials, allowing distributors to benefit from price volatility and arbitrage opportunities, he added.
Amid concerns over a major slowdown in growth in China, Ayles points out that Connell himself is not over-indexed to China but is “truly pan-Asian” with exposure to India, Indonesia , as well as Japan and South Korea, among other countries.
MORE OFFERS TO COME
Even after this transformational deal and in a challenging macroeconomic environment, Advent plans to continue making add-on acquisitions.
“The beauty of this segment is that there will be many additional opportunities here across all regions. We have made five add-on acquisitions so far this year and we will see more,” Ayles said.
Earlier in October, Caldic announced the acquisition of Spain’s Betaquimica, a distributor of specialty chemicals for industrial applications, including additives for polymers and rubber, as well as specialties for desalination processes.
Previous deals for Caldic this year include brewing ingredient distributor Mr.Malt (Italy), food ingredient distributor Avatar Corp (US), pharmaceutical ingredient distributor Active Pharmaceutica (Brazil) and of food ingredients Food Industry Technology Ltd (United Kingdom).
“We are a long-term investor and we have only just started [with Caldic]. We want to grow this business further and we are committed to the industry. It’s a compound that’s way beyond the chemical industry,” Ayles said.
“The final game will most likely be an IPO (initial public offering),” he added.
Maintenance article by Joseph Chang
Thumbnail photo: Pictured, left to right, as they sign the agreement, John Buckley, Chairman and CEO of Wilbur-Ellis; Ronald Ayles, managing partner of Advent International (owner of Caldic); and John Thacher, executive chairman of Wilbur-Ellis.