Partner Anton Ticktin Comments on Leather-Chemicals M&A in Bloomberg

February 4, 2013 | Patrick Winters & Sheenagh Matthews

Clariant Exit Seen Ending Leather-Chemical M&A False Starts

Clariant AG (CLN)’s decision to sell its leather-chemicals business is poised to spark more deals in the $4 billion industry, potentially ending more than five years of false starts by BASF SE and others to consolidate.

Emboldened by Clariant’s disposal announcement in November, creditors of Germany’s TFL Ledertechnik are still holding out for an offer close to 200 million euros ($270 million) after receiving lower bids last year, people familiar with the situation said. A number of buyout firms are considering buying and merging the businesses, they said, asking not to be identified as the talks are private.

Europe’s leather-chemicals industry — dominated by a handful of companies including Germany’s Lanxess AG (LXS) and Dutch Stahl Holdings — has suffered as Asian rivals added capacity driven by local demand for luxury bags, shoes and upholstery. Clariant tried to sell its unit in 2008, and Lanxess and BASF SE (BAS) previously discussed combining their leather-chemicals assets, said the people.

“Clariant’s disposal could be a source of momentum,” said Bernd Schneider, a chemicals adviser at investment bank Lincoln International LLC. “In leather chemicals, someone has to make the first move. If there is movement with Clariant and maybe TFL, BASF could also hope for a sale.”

Clariant’s leather services business has 12 production sites and employs more than 700 people. The unit had sales of 265 million Swiss francs ($292 million) in 2011 and earnings before interest, taxes, depreciation and amortization of 25 million francs. Shares of the chemical maker were little changed at 12.68 francs as of 10:12 a.m. in Zurich today.

Fresh Impetus

TFL, the maker of tanning agents and dyestuffs for leather bags and shoes, is being sold on behalf of creditors seeking repayments on debt taken on during a decade of ownership by buyout-firm Odewald & Cie.

TFL, based in Weil am Rhein, Germany, spurned low offers from buyout firms in the second half of 2012, one of the people said. The sale of TFL, which stands for Together For Leather, is now progressing with mostly buyout firms vying for the asset, another person said. The company hired Leonardo & Co. in 2011 to find a buyer.

With Clariant’s leather-chemicals unit also up for sale, private-equity firms are considering buying multiple assets and merging them to improve competitiveness, the people said.

BASF in 2011 said it failed to find a buyer for its leather-chemicals assets as offers fell short of its own valuation. The company at the time said it will retain the business after management improved its performance.

Stahl M&A

Clariant, based in Muttenz, Switzerland, has hired Greenhill & Co. (GHL) as an adviser on its sale process, according to two people with knowledge of the situation.

Representatives for Clariant, TFL, Lanxess, BASF, Greenhill and Leonardo declined to comment.

Other potential buyers include European rivals. Stahl, owned by Paris-based buyout firm Wendel SA (MF), is looking at some smaller acquisition targets to bolster its performance coatings business. Of the six largest competitors in Stahl’s industry, which together have more than 50 percent of the market, about three are for sale, Wendel board member Bernard Gautier said in December, adding that Stahl won’t miss out on good acquisition opportunities if prices are attractive.

Lanxess, which has been in the leather-chemicals industry for almost 100 years, purchased Dow Chemical Co. (DOW)’s chromium ore operations in South Africa in 2006, and it remains the only supplier with the entire value chain from the chrome ore to the leather tanning materials.

Luxury Bags

The Leverkusen, Germany-based company, which supplies car manufacturers such as Volkswagen AG (VOW), is investing 40 million euros to expand chromium operations and will this year open a leather-chemicals plant in China.

Christian Faitz, a Macquarie analyst, said Lanxess already has the leather-chemicals assets it needs and therefore may refrain from taking part in the current sales.

“Lanxess is probably content with the position they have,” he said. “I don’t think they want any more assets. You can’t afford to forget that it’s a cyclical business.”

As well as demand for luxury bags, shoes and upholstery, the leather-chemicals market is also tied to beef consumption and the availability of raw hides.

Manufacturers’ needs for leather are also shifting, leading to new product developments. Lanxess markets its X-lite brand as capable of cutting the weight of premium leather destined for aircraft and luxury cars by as much as 30 percent.

Anton Ticktin, a partner at investment bank Valence Group, said that investors often don’t realize that leather-chemicals assets can be more profitable than other businesses in the industry.

“One of the biggest factors is the money and margins you make are much better than you would be led to believe if you looked at textile chemicals,” Ticktin said. “Look at the automotive sector and treatments for the nice leather seats in Mercedes cars. The margins can be pretty high, but buyers don’t always attribute that.”

To contact the reporters on this story: Patrick Winters in Zurich at; Sheenagh Matthews in Frankfurt at

To contact the editor responsible for this story: Simon Thiel at