UPDATED: Materials firm A. Schulman Inc. has kept its buying streak alive with its biggest deal yet — acquiring compounder and composites maker Citadel Plastics Holdings Inc. for $800 million.
“Today's announcement marks a significant strategic milestone as we continue to transform the company beyond plastics compounding into a premier specialty plastics organization,” Schulman President and CEO Bernard Rzepka said in a March 16 news release.
Citadel posted sales of $550 million in 2014, employing 1,200 at 21 plants, including 17 in North America. The company was founded in 2007 by private equity firm Wind Point Partners of Chicago, which then grew the business through several acquisitions before selling it to Palo Alto, Calif.-based HGGC — another private equity firm — in 2012.
West Chicago-based Citadel had earnings before interest, taxes, depreciation and amortization of $75 million in 2014. That means the sale price has a healthy earnings multiple of 10.7.
“Over the years, A. Schulman has proven itself to be a preferred industry leader that understands how to unlock the growth potential of strategic assets,” Citadel CEO Mike Huff said in the release. “We look forward to maximizing our full potential as an integral part of A. Schulman.”
Citadel generated 55 percent of its 2014 sales from Engineered Plastics — primarily compounding — and the remainder from Thermoset Composites. Its 2014 sales total was up almost five percent vs. 2013.
The U.S. and Canada accounted for 86 percent of Citadel's sales last year. The firm's top three end markets in 2014 were transportation (26 percent), industrial/construction (20 percent) and consumer (19 percent).
On a March 16 conference call, Rzepka added that Citadel “met all of [Schulman's] criteria in strategic fit, future growth and financial feasibility.” A combined Schulman/Citadel would have had sales of just under $3 billion in 2014.
In a March 18 email, Citadel CEO Huff said that there was “minimal competitive overlap” between the two firms. He added that most Citadel management is expected to remain with Schulman.
For Fairlawn, Ohio-based Schulman, the deal is the 11th acquisition or joint venture in less than six years, but is by far the largest. The firm spent less than $600 million combined on the previous 10 deals, with the largest being its 2010 acquisition of ICO Inc. for almost $200 million. Most recently, Schulman in September paid $6.7 million in cash for Australian compounder/concentrate maker Compco Pty. Ltd.
On the conference call, Schulman officials did not give specifics, but implied that closing some North American plants was a possibility as Schulman incorporates the Citadel assets. Market watchers pointed out that the firm now has numerous assets in Evansville, Ind., a traditional U.S. plastics hub.
“There's synergy potential in the asset footprint,” Rzepka said. “We've conducted a thorough survey of our U.S. plants, and we'll do the same with Citadel.”
Getting its North American business closer in size to its massive European operations also was important to Schulman. The Americas accounted for less than 28 percent of Schulman's sales in its 2014 fiscal year. Acquiring Citadel almost doubles Schulman's U.S. sales.
“Now we can be a player in the U.S.,” Rzepka said. “We can be a very serious partner in supply and customer intimacy.”