Covestro and DSM: Sustainable Strategy

Shortly after celebrating its five-year business anniversary, Covestro has another reason to celebrate. It signed an agreement to acquire the Resins & Functional Materials Business (RFM) from Royal DSM on September 30, 2020. The transaction is still subject to regulatory approvals, including antitrust clearance, and is expected to close in the first quarter of 2021.

DSM Covestro sustainable Investment
With the acquisition of DSMs RFM business Covestro invests heavily in sustainable products Source: Elnur - stock.adobe.com

Covestro holds awell-established position in coating resins for applications within sectorsthat include automotive, industrial and protective and performance. The agreedacquisition will add a complete range of water-based polyacrylate resins and willdiversify the company’s portfolio of customer industries.

A purchase price ofEUR 1.61 billion accounts for the attractive growth markets of DSM’s highlyspecialised products. Among them are resins for use in paints and otherindustrial applications, and optical fibre coatings, a segment that holds vastpotential given the advent of 5G technology. Covestro will also gain greaterproximity to its customers in key markets and can add a further 20 productionsites to its network.

Strategic move forboth parties

The transaction alsofurthers DSM’s goals as it evolves into a company with a strong focus onnutrition, health and sustainable living. Recent acquisitions by DSM of theErber Group, Glycom and CSK are aligned with this mission.

Dimitri de Vreeze and Geraldine Matchett, co-CEOs of DSM, look forwardto watching the business unit grow and develop under Covestro leadership. They recognisethe shared culture and value placed on sustainability and view Covestro as astrong platform for growth that will benefit existing and potential customersand employees.

Greater innovation for the benefit of its customers

From Covestro’s perspective, the integration of RFM into its Coatings,Adhesives, Specialties (CAS) segment creates a comprehensive and innovativeproduct portfolio and one of the leading suppliers in the field of sustainablecoating resins. Michael Friede, head of this division, acknowledges thebusiness opportunities that can be leveraged by combining the strengths ofCovestro and the RFM team: “The combination of our research activities togetherwith RFM’s strong research pipeline will allow us to be even more innovative inthe field of coating resins and become an even more attractive R&D partnerfor our customers.”

CAS is currently the smallest Covestro segment based on sales of EUR 2.4billion in 2019. The acquisition will increase revenues by more than 40 %to about EUR 3.4 billion.

In addition, the CAS portfolio will be shifted towards high growthmarkets such as 3D-printing materials (average growth rate > 20 %) and advancedsolar coatings. Consumer demand for more sustainable ingredients, and stricterenvironmental regulations, is expected to spur market growth to about 5 %p.a. for sustainable coating resins. Covestro will be more than prepared.

Interview with Michael Friede

What led to the decision to acquire the RFM business from DSM?

Michale Friede: We pursue a clear and long-term oriented growth strategy that aims at expanding our sustainable and innovative businesses. The acquisition of RFM is strategically and financially a perfect opportunity to pursue this long-term growth strategy at highly attractive conditions and tangible synergies.

Acquiring RFM adds about €1 billion in revenues to our Coatings, Adhesives, Specialties segment  – this represents an increase of about 40 %. Additionally, the acquisition of RFM is a milestone in our journey to a circular economy: With this transaction, we are gaining strong brands focused on sustainability and an excellent research pipeline allowing us to serve our customers’ needs even better.

How does this acquisition help your circular economy goals?

Michael Friede: The acquisition of RFM is a key step in our journey to a circular economy:

Products:

Covestro is already one of the leading providers of water-based polyurethane dispersions. With the acquisition of RFM, we will add a complete range of water-based polyacrylate resins and will expand our technology portfolio to include water-based hybrid technologies, powder coating resins as well as radiation curing resins. RFM includes strong brands in terms of sustainability as well as additive manufacturing, and an advanced solar coatings business.

Innovation:

The transaction is an important step to drive innovation for the transition towards a circular economy. Both businesses have an excellent and complementary research pipeline, especially in the area of sustainable high-performance raw materials for the coatings industry. Combining them will allow us to be even more innovative in the field of coating resins and become an even more attractive R&D partner for our customers. Thereby, we will be able to drive innovation and to advance sustainability across the integrated customer industries as well as to pursue the transition to a circular economy even faster.

Note:

Covestro has signed an agreement to acquire the Resins & Functional Materials business (RFM) from Royal DSM at September 30, 2020. The transaction is still subject to regulatory approvals, including antitrust clearance. The closing of the transaction is expected for the first quarter of 2021.

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