AMSTERDAM (Reuters) - Paint and coatings maker Akzo Nobel (AKZO.AS) has agreed to buy BASF’s (BASFn.DE) industrial coatings business for 475 million euros ($531 million) to strengthen its position in coatings for widely used steel and aluminum bands.
“This proposed acquisition will strengthen our position in the important coil coatings market,” Akzo Nobel Chief Executive Ton Buchner said in a statement, referring to coatings for coiled metal sheets that are processed into facades, refrigerators, window blinds and a wide range of industrial products.
Akzo is already one of the largest suppliers in that market.
Akzo Nobel is paying a multiple of more than eight times the asset’s expected 2016 earnings before interest, taxes, depreciation and amortization, a person familiar with the matter said.
“There is large demand from peers for coatings assets and BASF was able to benefit from that,” the source said.
Coatings groups such as Axalta (AXTA.N) and PPG (PPG.N) trade at 8.7 and 9.4 times their expected core earnings, respectively, while BASF and Akzo trade at only 6.7 and 6.5 times, according to Thomson Reuters data.
BASF’s industrial coatings business, which had sales of 300 million euros in 2015, is seen by industry experts as lacking the scale needed to compete effectively in future.
BASF, the world’s largest chemicals maker by sales, has said it would look into hiving off businesses that have come under pressure from low-cost rivals.
Akzo Nobel, which has in the past indicated it is open to smaller bolt-on acquisitions, said the coatings business was a good fit for its existing units.
As part of the deal, expected to complete in the second half of this year, two manufacturing plants - one in Britain and one in South Africa - will be transferred to Akzo Nobel.
“The BASF business is asset-light and the buyer will need his own plants to take full advantage of it. That’s why only strategic players and no private equity players took part in the auction,” the source familiar with the deal said.
Industrial coatings account for only a small part of BASF’s 3 billion euro coatings division. About 77 percent of the division’s sales come from the automotive coatings business, which BASF is keeping.
The two companies had said on Feb. 11 they were in talks on a possible deal.
HSBC advised BASF on the deal while Akzo Nobel was advised by Citi.
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Additional reporting by Arno Schuetze in Frankfurt; Editing by Mark Potter, David Holmes and Adrian Croft