ChemChina adds KraussMaffei to portfolio

TORONTO—KraussMaffei Group, a major global plastics machinery company, soon will have a new owner: state-owned China National Chemical Corp.

ChemChina called KraussMaffei “the Rolls-Royce” in the polymer machinery industry.

KM, ChemChina and Onex Corp., the Toronto-based private equity firm that has owned KM since 2012, announced the deal Jan. 10.

ChemChina highlighted this is the single largest investment that a Chinese company has ever made in Germany.

In their announcements, ChemChina and KM CEO Frank Stieler described the prospective new owner as a long-term investor—a contrast from KM's last two private equity ownership groups. Chemical companies have some of the longest-term investment cycles, he said in a conference call Jan. 11.

“With ChemChina, we have found a strategic and long-term oriented investor who has been interested in our company for many years,” Stieler said in a news release.

KM will continue to operate in its current corporate structure and will remain in Munich, and all current KM locations will remain in operation, he said.

ChemChina, a state-owned-enterprise, said its existing machinery subsidiary—China National Chemical Equipment Co. Ltd.—and KraussMaffei have complementary product portfolios and markets. In addition, they are strategically and organizationally aligned with compatible management and cultures, allowing for significant synergies.

ChemChina Chairman Ren Jianxin said in a statement: “We are strengthening our company with one of the leading global engineering groups, encompassing a 178-year corporate history. In doing so, we expect KraussMaffei Group will maintain its identity and independence.”

ChemChina claims to be China's largest exporter of rubber machinery.

Ren said the deal is also an implementation of China's “One Belt One Road” and “international production capacity cooperation” initiatives.

The cash value of ChemChina's purchase is $1.01 billion, a 62 percent gain from the $731 million deal in 2012 when Onex bought KM from Madison Capital Partners. Onex highlighted KM's improved financial performance in its announcement.

China Reform Holdings Corp. Ltd., an investment firm charged with revamping state-owned enterprises, and leading Asian-European private equity firm AGIC Group, also took shares in the transaction, ChemChina said.

The deal is pending antitrust approval. Stieler, the KM head, had no comment when asked if other companies bid on the machinery manufacturer.

Stieler was named CEO in June. His previous experience includes top management positions at Lurgi AG, Siemens A.G. and Hochtief A.G.

KM's brands include KraussMaffei and Netstal injection molding presses and Berstorff extrusion technology and polyurethane machinery. At the Fakuma trade show in October, KM reported that its January-June 2015 sales were $626 million. According to Onex's latest annual report, KM reported full year 2014 sales of $1.47 billion.

Onex said the deal with ChemChina is scheduled to close in the first half of 2016.

Technical expertise

Ren said ChemChina is investing in KM's strong management team and technological expertise.

“The growth potential of the KraussMaffei Group is tremendous, especially through improved access to the Chinese market, which we can make possible,” he said. “We expect trends in the automotive industry toward advanced manufacturing and lightweight components will provide a huge development opportunity for the high-end plastic injection molding industry.”

Stieler said Onex had a “very successful year” in 2015, and Onex said the company will report 10 percent sales growth for the year.

Stieler said China currently accounts for a “low double-digit” percent of KraussMaffei's total business. He predicted that as part of ChemChina, KM will “considerably accelerate our growth strategy, especially in China and Asia, and to further strengthen the company in Germany and Europe.”

In China, the company will benefit from a trend toward processors buying higher quality and more efficient plastics machinery—and from a government effort called “Made in China 2025” to help Chinese manufacturers catch up with advanced manufacturing powerhouses such as Germany, and fend off competition from other emerging economies.

As a result of the transaction, KM will accelerate its planned expansion in China, the companies said in the release, adding that the company's operating and corporate responsibility “will stay in Europe.” The company plans to increase its employment in Germany in 2016.

“All existing collective agreements and location-based commitments will remain unchanged,” the company said in the release.

KM currently has 4,500 employees globally, including 2,800 based in Germany. Stieler said in the conference call the company plans to add 150 jobs in Germany this year. KM will have its own managing board, with current members, he said.

“It's technology. It's quality, but it's also management skills,” Stieler said.

The unusually thorough announcement from the companies even included support from KM's works council and the IG Metall trade union, both saying they welcomed the change in ownership.

“We consider the transaction as a significant opportunity for the KraussMaffei Group and its employees. We are confident that through further growth the existing jobs in Germany and Europe will be secured and expanded,” said Peter Krahl, chairman of the works council.

Horst Lischka, company representative of IG Metall, added: “I am pleased that the German principle of co-determination is also enjoying greater appreciation abroad as a foundation for sustainable corporate success.”

KM has been headquartered in Munich since 1838.

ChemChina is China's largest chemicals group, with sales of $40 billion and 140,000 employees. The company ranks 265th on the Fortune 500 list and No. 9 in global chemicals.

ChemChina's publicly listed subsidiary, Tianhua Institute of Chemical Machinery and Automation, said in a filing that KraussMaffei's business has a certain competitive relationship with its plastics processing technology business—extrusion and reaction molding. Tianhua said ChemChina will follow the non-competition agreement that was previously reached to handle the issue.