83308 Trostberg, de
AlzChem AG is planning an IPO in Frankfurt
AlzChem AG, a vertically integrated specialty chemicals producer with leading positions in selected niche markets, is planning an initial public offering (IPO) in the regulated market (Prime Standard) of the Frankfurt Stock Exchange.
Strong competitive positioning with market entry barriers due to a vertically integrated manufacturing system ("Verbund system"), trademark and patent rights and other intellectual property from extensive research and development activities as well as complex regulatory requirements.
High potential for future growth by consistently aligning products with external growth drivers such as global population growth, healthy aging and energy efficiency.
The planned proceeds of approximately EUR 40 to 50 million from the capital increase as part of the IPO are intended to be invested to a large extent in the construction of a new production facility for the specialty chemical product CreAMINO at the Trostberg site.
AlzChem AG (together with its subsidiaries hereinafter "AlzChem") plans an IPO on the regulated market (Prime Standard) of the Frankfurt Stock Exchange in the first half of 2017. AlzChem is headquartered in Trostberg in the "Bavarian Chemical Triangle" (ChemDelta Bavaria). As a vertically integrated chemical company with 1,480 employees, AlzChem produces and markets chemical products from the calcium carbide / calcium cyanamide value chain (NCN chain) for diversified markets. These products with a typical nitrogen-carbon-nitrogen bond are used in a variety of industries. Serving customers worldwide, AlzChem has four production sites in Germany, a carbide plant in Sweden, a sales subsidiary in the US and a Chinese subsidiary for raw material purchase and Asian sales.
"We are taking the lead in selected niche markets, including markets for feed additives and food supplements, which have significant growth potential. We feel we are very well positioned for future profitable growth. Besides vertical integration, our clear focus is on research and development. Furthermore, we are protected by high market entry barriers," says CEO Ulli Seibel in explaining AlzChem’s positioning.
A specialist for chemical products with an attractive financial profile
AlzChem AG’s operating activities are divided into the business segments Specialty Chemicals, Basics & Intermediates and Other & Holding. In the first nine months of 2016, sales totaled EUR 250.5 million (9M/2015: EUR 248.2 million). Of this, 51.1% (EUR 128.0 million) was attributable to the Specialty Chemicals segment, 41.6% (EUR 104.3 million) to Basics & Intermediates and another 7.3% (EUR 18.2 Million) to Other & Holding. The EBITDA margin in the first nine months of 2016 amounted to 14.3% for AlzChem (prior to non-operating one-off effects in the course of the planned IPO) and to 23.4% for the Specialty Chemicals business segment. In the first nine months of 2016, 40.8% of sales were generated in Germany and 59.2% abroad. Investments in innovations in the Specialty Chemicals business segment over the last few years have made a clear contribution to the company’s profitability.
Specialty Chemicals, the largest business segment, comprises the manufacture and distribution of high-quality chemical products for various end markets, including agricultural feed additives (under the brand CreAMINO), food supplements (under the brand Creapure), high-purity guanidine salts such as guanidine hydrochloride and guanidinium thiocyanate for biotechnology, diagnostics and pharmaceutical industries (under the name BioSELECT) as well as silicon nitride powder (under the brand Silzot) for the ceramic, coating and photovoltaic industries.
The Basics & Intermediates segment includes the production of chemical intermediates based on the starting materials calcium carbide and calcium cyanamide. These intermediate products are sold either directly to third parties or further processed into specialty chemical products. Intermediate products that can be sold directly include: special agricultural fertilizers (under the brand Perlka) as well as hot metal desulphurization mixtures for metallurgy (under the brand CaD). According to IHS Chemicals, AlzChem is the largest supplier of calcium carbide in Europe (excluding the former USSR), with over 50% of its production capacity dedicated to it. This market position was achieved, inter alia, with the 2014 acquisition of today’s Nordic Carbide AB in Sweden.
In the third segment, Other & Holding, all other activities are grouped together. Essentially, these services center around the chemical park in Trostberg, which is operated by AlzChem (partly for third parties).
Entry barriers and innovation capabilities
With its high degree of vertical integration, AlzChem sees a significant entry barrier for potential competitors. Composite production on the basis of the NCN chain allows AlzChem to use three essential advantages: first, addressing diversified end markets allows flexible reaction to changes in demand through optimized production facility utilization. Second, synergies can be achieved in individual production processes and in research and development along the NCN chain. Thirdly, AlzChem is largely independent of external suppliers. As a result, AlzChem is able to benefit from vertical integration to take an advantageous cost position, making it possible to efficiently address niche markets for specialty chemicals.
In addition, over 60 patent families and other intellectual property are further important building blocks for AlzChem’s success. Its extensive product portfolio is the result of continuous investment in consulting, research and development. Investment activities are focused on the research and development of new products and production processes, the improvement and refinement of existing products and processes and the development of new applications for existing products.
In the company’s view, complex regulatory requirements and brand loyalty for specialty chemicals applications represent further entry barriers.
Issuance proceeds from the capital increase to be used to finance growth
AlzChem AG’s shares are currently held by three family offices, LIVIA Capital Partners GmbH (48.16%), HDI Vier CE GmbH (28.48%) and four two na GmbH (21.36%), as well as by Ulli Seibel (2.00%), CEO of Alzchem AG. AlzChem AG plans to use the majority of the gross proceeds of approximately EUR 40 to 50 million it expects from the issuance of new shares in AlzChem AG for the construction of a new production facility for CreAMINO. Furthermore, existing shares are to be offered by the three family offices ("selling shareholders") in the course of a secondary placement. In addition, the selling shareholders intend to enable the underwriting banks to offer up to 15% of the base offer as part of an over-allotment option (greenshoe). The offer is intended to include a public offer in the Federal Republic of Germany and the Grand Duchy of Luxembourg as well as private placements in certain other countries. In the United States of America, the shares are to be offered and sold exclusively to qualified institutional buyers as defined by Rule 144A of the U.S. Securities Act of 1933, as amended. After the IPO, the target free float is of over 50%. A customary lock-up of twelve months from the IPO is planned for the company and the current shareholders.
"We want to grow profitably in the future by leveraging the sales potential of our existing product portfolio in the Specialty Chemicals business segment, which is the result of megatrends like global population growth, healthy aging and energy efficiency. We also want to focus on our innovations in the future," says Seibel in commenting on the company’s strategy.
Growth driver: increasing global population
The growing world population is driving the growth of the markets for feed additives and the means of growth regulation in cultivated plants. According to the United Nations, around 7.3 billion people lived on our planet in 2015. This figure is expected to rise to 8.5 billion by 2030. At the same time, land that can be used for farming is limited. In light of this trend, efficient agricultural processes and supply security are becoming increasingly important.
AlzChem is addressing this development with the feed additive CreAMINO, which animals process into the bodily substance creatine, leading to improved feed utilization. This allows agricultural businesses to reduce the total feed volume required. The use of CreAMINO can therefore lead to cost savings on the part of the animal owners and to a general reduction in the ecological footprint of feed production and transport. Thanks to these special characteristics, AlzChem succeeded in achieving an average annual sales growth of approx. 59% with CreAMINO between 2013 and 2015. According to Frost & Sullivan, AlzChem was the dominant player and global market leader in the field of creatine-based feed additives as of 2015. In the fourth quarter of 2016, the Food and Drug Administration (FDA) granted approval of a petition filed by the company, enabling it to supply CreAMINO for broiler chickens and turkeys in the U.S. The world market for CreAMINO is expected to grow at an average growth rate of about 31.7% per year to a sales volume of EUR 98.8 million by the year 2020. In order to raise these potentials, AlzChem is striving for increased market penetration through the approval of CreAMINO for other species and countries.
Supply efficiency and security are also gaining importance for cultivated plants: with Dormex, natural budding can be controlled by local farmers in permanently warm areas so that a coordinated harvest is possible over all treated plants. In addition, the use of Dormex makes it possible to increase the bud count per plant. Dormex is used, for example, with grapes, apples, cherries and berries. Here as well, AlzChem has been able to increase sales continuously over the last three years by an average of approx. 6% annually. By the year 2020, average annual market growth of approximately 8.7% is expected by Frost & Sullivan, suggesting that the global market will grow to up to EUR 54.0 million in sales volume.
Growth driver: healthy aging
AlzChem is also well positioned to benefit from healthy aging as an external growth driver. AlzChem already owns 32% of the creatine market in dietary and nutritional supplements. AlzChem distributes the product under the end customer brand Creapure. Consisting of creatine, which is produced naturally in the body, Creapure helps to build muscle as well as increase physical performance. This was confirmed by the European Food Safety Authority (EFSA). Accordingly, the product is currently mainly used in the sports and fitness industry. However, AlzChem is striving to open up further target groups for Creapure. In the short term, AlzChem will try to place Creapure in the over-50 age group to counter natural decline in muscle mass. AlzChem sees the high degree of purity of Creapure as a key competitive advantage. From 2013 to 2015, AlzChem was able to increase sales of Creapure by an average of approx. 11% annually. According to Frost & Sullivan, the global market volume of creatine in an athlete’s diet and as food supplements is expected to amount to EUR 86.0 million by 2020 (annual average growth rate of 5.3%).
AlzChem is targeting particularly the biotechnology, diagnostics and pharmaceutical industries with special chemical products marketed under the product name BioSELECT. These high-purity guanidine salts are an essential component in the production processes of these industries. Due to this high importance for the production processes, companies that purchase these products pay close attention to quality – and have found a reliable supplier in AlzChem. With a market share of 60% (in terms of sales), according to Frost & Sullivan, AlzChem was world market leader in this niche sector in 2015 and also had the only production site for the raw material dicyandiamide outside China. Against this backdrop, AlzChem sees itself well positioned to benefit from projected average annual growth rates of approximately 14.3% by 2020.
Growth driver: energy efficiency
AlzChem addresses the external growth driver energy efficiency through the products DYHARD and Silzot, which are used particularly in the ceramic, coating and photovoltaic industries. DYHARD is a chemical product that is used as an alternative to classical welding to join two components, in the automotive and aerospace industries for example. DYHARD’s advantage is that its use adds less weight than a weld seam. Less weight contributes to lower total fuel consumption and thus to higher energy efficiency.
Silzot, on the other hand, is used as a release agent in the production of photovoltaic cells. Silzot is also used in the ceramics industry, however, as a curing agent for individual parts that must withstand extreme mechanical and thermal effects. In the market for silicon nitride, an average annual growth rate of approx. 8.2% is expected by Frost & Sullivan by the year 2020, amounting to a global market volume of EUR 98.5 million. AlzChem is the largest European supplier in this niche.
Société Générale Corporate & Investment Banking and Baader Bank will manage the IPO as Joint Global Coordinators and Joint Bookrunners. Co-Lead Manager is ODDO SEYDLER BANK AG.
More information on AlzChem AG is available online at www.alzchem.com.
This publication may not be published, distributed or transmitted, directly or indirectly, in or into the United States, Canada, Japan or Australia. This publication constitutes neither an offer to sell nor an invitation to buy or subscribe securities in the United States, Germany or any other jurisdiction. The shares in AlzChem AG (the "Shares") may not be offered or sold in the United States or to or for the account or benefit of "U.S. persons" (as such term is defined in Regulation S under the Securities Act of 1933, as amended (the "Securities Act")) absent registration or an exemption from registration under the Securities Act. No offer or sale of transferable securities is being, or will be, made to the public outside Germany and Luxembourg. Offers in Germany and Luxembourg will be made exclusively by means of and on the basis of a prospectus that will be published and will be available free of charge at the company.
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