- Disposal a first step in firm's new strategy
- Sale price tops analyst and company forecasts
- Core business still faces significant headwinds
Specialty chemical maker Synthomer (SYNT) announced it had reached a deal to sell some of its non-core businesses in order to pay down its debt and restructure its finances.
The shares, which have lost over 70% of their value this year, added more than 8% to 127p as investors applauded the firm’s decision.
WHAT DOES TODAY’S DEAL INVOLVE?
The company has agreed to sell its Laminates, Films and Coated Fabrics businesses to the North American subsidiary of German surface materials group Surteco (SUR:ETR) for an enterprise value - in other words the value of its equity and debt - of $255 million or £208 million.
The price represents a multiple of around eight times 2021 EBITDA (earnings before interest, taxes, depreciation and amortisation), which is not only above the valuation expected by the market but above the price Synthomer itself put on the assets.
Writing in September, analysts at Berenberg forecast the laminates and related businesses could fetch a multiple of five times EBITDA or around £160 million, while the firm estimated a multiple of seven times.
The sale is the first step in the company’s strategy to reposition itself as a specialty chemicals producer, as outlined in October, by reducing complexity, focusing on more attractive end-markets and bringing down its leverage or debt burden.
Prior to today’s news, Berenberg forecast year-end net debt would have been around 3.6 times EBITDA, above the 3.5 times limit in its covenants, meaning the firm would have had to renegotiate its borrowing with its lenders or been forced to raise more cash through a rights issue.
Instead, Synthomer says it will use the net proceeds from the deal to repay some of its loans in order to ‘support a reduction in leverage towards the company's target range of one to two times net debt to EBITDA over the medium term’.
NOT OUT OF THE WOODS YET
While today’s news is undoubtedly positive from a financial point of view, underlying trading remains challenging for the group.
At the end of September, the firm reported that high levels of inventory of medical gloves at its customers combined with reduced demand from the healthcare sector had led to ‘a prolonged period of destocking’, meaning it had scaled back production of NBR (nitrile butadiene rubber).
The company now sees this destocking process lasting until the end of 2023, although its Performance Elastomers division should still make a ‘modest’ profit for the second half of this year.
The news from the coatings business was equally downbeat, with the second-half slowdown in construction and other end-markets in Europe spreading to other regions leading to a fall in demand.
