Hexpol buys Preferred Compounding in $232 million deal

MALMO, Sweden — Hexpol Group, the world's largest rubber compounder, is getting even bigger as it has closed a deal to purchase Preferred Compounding Corp. from private equity firm Audax Group in a deal worth $232 million.

Copley, Ohio-based Preferred was the No. 2 compounder in North America — trailing only Hexpol — posting 2018 sales of about $240 million, according to a news release from Sweden's Hexpol Group. Preferred employs about 540 and has six factories, five in the U.S. and one in Mexico.

In addition to its rubber compounding, Hexpol also is a supplier of thermoplastic elastomers and thermoplastics.

Hexpol said the $232 million acquisition was completed July 1 on a cash and debt-free basis, and was funded by a combination of cash, existing bank facilities and a new credit facility.

"Preferred Compounding has a legacy of technical excellence with a product suite of over 7,500 compounds designed for the most critical applications," Tracy Garrison, president of Hexpol Compounding Americas, said in a statement. "Further, approximately 70 percent of the compounds are derived from proprietary or enhanced co-developments serviced by highly strategic relationships."

Garrison added that the purchase leverages Hexpol's global supply chain and provides the firm with added capabilities, application technology and customer base.

Preferred Compounding supplies rubber compounds to such markets as general industry, automotive, power and infrastructure.

Further, Preferred will help Hexpol secure global capacity and competence in advanced polymer compounds.

"This acquisition will strengthen our global positions in advanced polymer compounds with improved supply chain, cutting-edge expertise in polymer materials and solid knowledge of applications," Mikael Fryklund, Hexpol Group president and CEO, said in a statement.

Hexpol said Preferred has an EBITDA margin below the Hexpol Group, but it is expected to make a positive impact on earnings per share.Integration activities will start immediately, and Hexpol said potential restructuring and cost savings will be evaluated and communicated at a later time.

Fryklund indicated that Preferred Compounding CEO Ken Bloom will not be staying with the operation. In a statement, he congratulated Bloom on his development of a well-run organization and wished him well "as he continues to pursue other professional interests."

Audax and some members of the custom mixer's management team purchased Preferred Compounding in early 2016. Since that time Preferred also was a player in mergers and acquisitions in the rubber compounding area, buying Trostel Ltd. in 2016 and the assets of Valley Rubber Mixing in January. Preferred also added a facility adjacent to its mixing plant in San Luis Potosi, Mexico; boosted capacity at its factory in Huntington, Tenn; and leased a new headquarters in Copley, freeing up space at its Barberton, Ohio, compounding plant.