H.B. Fuller to acquire Royal Adhesives

ST. PAUL, Minn.—H.B. Fuller Co. signed a definitive agreement to purchase Royal Adhesives & Sealants L.L.C. from its private equity owner American Securities L.L.C. for about $1.58 billion.

The firms reached the agreement on Sept. 4, subject to customary closing conditions. If approved, the pact brings about $650 million in revenue and $138 million in adjusted EBITDA to H.B. Fuller for fiscal year 2017.

H.B. Fuller CEO Jim Owens said on a Sept. 5 conference call that the deal is projected to close in October. The executive added that he does not envision the need for a full-scale consolidation effort, but it will drive efficiency and eliminate redundancy where needed.

Based in South Bend, Ind., Royal employs 1,500 people at 19 manufacturing sites in five countries with the bulk of its presence in North America.

"This acquisition creates immediate value for shareholders based on Royal's solid organic growth track record," Owens said. "This business fits perfect with our strategy to shift H.B. Fuller's portfolio towards engineering adhesives and other highly specified end markets."

Owens confirmed that American Securities held an auction for the Royal business, selecting two other bidders for the second stage of the process before selecting H.B. Fuller's offer.

If approved, Royal will bring H.B. Fuller's fiscal year 2017 revenue to $2.85 billion, solidifying it as one of the 10 biggest adhesive manufacturers in the world. Owens said the firm projects EBITDA of $430 million and free cash flow of about $350 million for 2017 with the Royal business.

He added that by 2020 Royal will help push H.B. Fuller's sales to $3.2 billion with $600 million in EBITDA and $500 million in free cash flow. Owens said the deal also will bring about $35 million in cost synergies.

"Our goal is to be the best adhesives company in the world based on customer satisfaction, employee engagement and shareholder returns," Owens said. "This deal furthers our ability to accomplish that."

Currently H.B. Fuller generates about 44 percent, or $968 million, from its highly-specified business segments—which include engineering adhesives, durable assembly and construction products—and the remaining from hygiene, packaging and other segments.

With Royal's business—which generated about 87 percent of its sales, or about $565.5 million, from those highly specified areas—H.B. Fuller will generate about 53 percent of its sales, or $1.51 billion, from engineering adhesives, durable assembly and construction products. Owens said the breakdown is projected to reach 57 percent of sales, or $1.82 billion, focused on those three segments by 2020.

Owens said the deal will allow H.B. Fuller to become the No. 1 global insulating glass supplier, the No. 1 player in the commercial roofing space and introduces a formidable presence in the construction space.

It also will expand its presence in engineering adhesives into many high growth segments, including aerospace and rubber to metal bonding adhesives, with about $100 million in new business, which, according to Owens, was a major factor in the agreement.

Geographically, Owens said, H.B. Fuller's infrastructure in Asia-Pacific will help accelerate Royal's growth in ways it wasn't able to achieve on its own.