W. R. Grace & Co. has entered into a definitive agreement to acquire the Fine Chemistry Services business (FCS) of Albemarle for approximately $570 million, including $300 million paid in cash at closing and $270 million funded through the issuance to Albemarle of non-participating preferred equity of a newly created Grace subsidiary.
FCS adds a portfolio of products and services with complementary analytical, regulatory and manufacturing capabilities to Grace’s existing pharma portfolio focused on chromatographic resins, formulation excipients and drug delivery, and pharmaceutical intermediates and active pharmaceutical ingredients (APIs).
“This acquisition is strategically and financially compelling and aligns perfectly with our strategy of building a higher growth portfolio by extending our existing capabilities into higher-growth, high-value end markets,” said Hudson La Force, Grace’s President and Chief Executive Officer. “Combining these businesses strengthens our innovation and manufacturing capabilities and gives us scale that will further strengthen our customer value proposition and drive meaningful financial results for our shareholders. FCS’ impressive talent, customer-focused culture, track record of innovation and commitment to operating excellence align well with the Grace Value Model. We look forward to working with our customers to deliver high-value solutions that span every stage of their development cycle.”
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The acquisition adds approximately $60 million in full-year run-rate EBITDA in 2021, with EBITDA margins of over 35%. Grace expects modest near-term cost synergies with greater commercial and capital avoidance synergies over the longer-term. The investment is well aligned with Grace’s stated capital allocation strategy and M&A criteria. Seller financing adds financial flexibility and capital efficiency.
Under the terms of the agreement, which has been unanimously approved by the Grace Board of Directors, Grace will pay Albemarle total consideration of $570 million, representing a full-year run rate 2021 EBITDA multiple of 9.5x. $300 million of the total consideration will be paid upon closing in cash, and $270 million will be funded through the issuance to Albemarle of non-participating preferred equity of a newly created Grace subsidiary. The preferred equity will not receive any dividends for a period of two years following the closing of the transaction. Grace expects to finance the cash portion of the transaction with a mix of cash and debt.
The transaction is expected to close in the second quarter of 2021, subject to customary closing conditions, including receipt of certain regulatory approvals.
As previously announced, consistent with its commitment to all shareholders, the Grace Board of Directors, working with management and its financial advisors, is undertaking a thorough review of potential strategic alternatives to maximize value for shareholders. The process remains active and the Company continues to pursue a number of potential opportunities.