Imerys unearths growth opportunities with AMCOL acquisition

AMCOL International Corp. Market Cap (as of 28/02/2014): $1.45bn

Imerys S.A. Market Cap (as of 28/02/2014): €5.14bn

Minerals Technologies Inc. Market Cap (as of 28/02/2014): $1.85bn

On February 26th, 2014 AMCOL International Corp., an American minerals and materials group, agreed to a revised tender offer from Imerys SA, the world leader in mineral-based specialty industrial solutions, at $42.75 per share in cash. The announcement followed an original offer of $41.00 per share on February 12th, which was later amended to the current $42.75 per share as a consequence of a potential competing offer to acquire the company.

Indeed, Imerys’ latest offer topped a rival bid by Minerals Technologies Inc., which offered $42.50 per share on February 24th. Since AMCOL is incorporated under Delaware business law, the board is typically required to accept the highest offer.

Such a strong interest for AMCOL is mainly due to its strong position in the recovering US market as well as to its large reserves of bentonite, a key mineral used in a variety of construction and energy applications. AMCOL is also a leading producer and marketer of diverse specialty materials, in particular of minerals and polymers. The company has recorded a positive trend in net sales since 2009 (CAGR of 12.8% over the 2009-2012 period) that peaked in 2012 at almost $1bn. Moreover, 64% of 2012 net revenues were located in North America, while 50% of 2012 net sales were achieved in the high-margin segment of performance materials which recorded a 15.5% operating margin. Finally, AMCOL’s core expertise in minerals and polymer science would allow any peer acquirer to strongly enhance its own business capabilities in a sector in which R&D plays a pivotal role.

Therefore, Imerys’ offer has a strong rationale: although the French-based company is the worldwide top player in the industry, in 2013 it has seen its revenues decrease by 4.8% y-o-y to €3.7bn mainly as a consequence of the drop in sales in Europe, which recorded a y-o-y decrease by 4.4% to €1.73bn (in particular French sales recorded a -10.6% y-o-y to €0.55bn), and in Emerging countries, which recorded a decrease by 7.5% y-o-y to €0.96bn. Therefore, the merger with AMCOL would allow Imerys to benefit from the strong recovery of the US market, thus sustaining Imerys’ top-line.

Imerys also expects the acquisition to generate significant commercial and operational synergies. According to the company’s CEO, Gilles Michel, the combination of the two companies would create “many business and development opportunities” allowing Imerys “to become a better leader of mineral-based specialty solutions for industry, to strengthen its presence in the US, to be more innovative and to enhance its growth profile”. Finally it is worth noting that Imerys has developed expertise in post-merger integration as a result of the numerous acquisitions carried out in the past (e.g. the acquisition of PyraMax Ceramics, LLC in April 2013).

The tender price of $42.75 per share for 100% of AMCOL’s outstanding shares entails price tag of $1.39bn and a 24.5% premium to the volume-weighted average closing price of AMCOL’s common stock over the last 30 trading days (the original offer at $41.00 per share implied a premium of 19%). Thus, the transaction would value AMCOL’s enterprise value at approximately $1.61bn (including net debt), implying an EV/EBITDA of 11.25x for 2012, which compares with the average 8.75x EV/EBITDA multiple of the metals & mining sector in the US as of January 2014.

Imerys announced its intention to fund the whole price tag with debt and that it has secured the necessary funding, beyond being comfortable with its financial covenants and an investment grade rating after the transaction. The current net leverage (Net Debt/EBITDA) of the French company stands at 1.4x while the combination of the two companies would imply a quick-and-dirty pro-forma adjusted net leverage of 2.69x after acquisition.

The share price of AMCOL reacted positively to Imerys’ original announcement, recording a +12.8% to $41.24 on February 12th, and then surging up to $45.91 on February 20th after the competing tender of Mineral Technologies. Imerys’ share rose by 4% on the original announcement date and then fell by 1.2% on the following day when Minerals Technologies made its own offer for AMCOL.

The tender offer is subject to customary conditions including the tender of a majority of AMCOL’s share of common stock, on a fully diluted basis, and clearance from relevant regulatory authorities.
Goldman Sachs and Kirkland & Ellis LLP are acting as financial advisor and counsel respectively for AMCOL International.

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