Quaker Chemical to Acquire Houghton

Quaker Chemical announced last week an agreement to acquire Houghton International, a deal that will combine two of the world’s largest suppliers of metalworking fluids.

Houghton is currently owned by Indian conglomerate Hinduja Group through its lubricant business, Gulf Oil. The deal calls for Hinduja to take a nearly 25 percent stake in the combined company and to be given three seats on its board of directors.

Quaker Chemical officials said the combined company will offer a broader range of products, allowing cross-selling opportunities that should fuel near-term growth. They also predicted that the combined company will be better at bringing products to market.

“By combining resources,” explained Quaker Chemical’s Internal Communication Manager Melissa McClain, “the new company will increase the breadth of its innovative technology, accelerate its product development capabilities, speed its time to market and diversify its long-term R&D pipeline.”

Per the agreement, Quaker Chemical will pay $172.5 million in cash, assume Houghton’s net debt (which was U.S. $690 million at the end of 2016) and conduct a stock exchange that gives Hinduja a 24.5 percent stake in the new company. This will make the Hinduja Quaker Chemical’s largest shareholder.

According to the press release, Quaker Chemical secured $1.15 billion in financing from Bank of America Merrill Lynch and Deutsche Bank Securities Inc. to support the transaction, including “$200 million of additional liquidity for future needs.” Quaker Chemical’s Chief Financial Officer Mary Hall said during a webcast Wednesday that the company aims to syndicate the bank facility within 60 days.

The transaction requires approval from Quaker Chemical’s shareholders as well as approval from governing bodies in several regions.

In 2016, Houghton posted an adjusted earnings before interest, tax, depreciation and amortization of $120 million on a revenue of $767 million. Quaker Chemical posted slightly lower earnings of $747 million, with an adjusted EBITDA of $107 million.

Quaker Chemical’s sales are dominated by metalworking fluids used in the production of primary metals, and Houghton mainly supplies metal removal fluids used in processes such as drilling, grinding and cutting. The combined company is expected to derive 55 percent of its revenue from sales of metal removal fluids, 38 percent from products used in production of primary metals and 7 percent from other products.

Geographically, Quaker Chemical and Houghton have the largest portions of their sales in North America. Forty percent of the combined company’s sales should be in North America, 31 percent in Europe, the Middle East and Central Asia, 24 percent in Asia-Pacific and 5 percent in South America.

Industry analysts have ranked both Quaker Chemical and Houghton as among the world’s several largest metalworking fluid suppliers. George Morvey, industry manager for the Energy Practice at Kline and Co. consultants, said the combined company will probably be the largest.

If the acquisition is approved, Mike Barry will continue in his role as Quaker Chemical’s chief executive officer and chairman to the board. The complete management structure, however, will not be announced until an integration planning process.

Quaker Chemical’s employees may see changes as “headcount reductions” is listed as a source of synergy in Quaker Chemical’s webcast presentation. In their Securities and Exchange Commission filing issued Wednesday, Quaker Chemical notes the company expects to see some facilities close, likely because Houghton and Quaker Chemical have a number of facilities in the same areas. The closures, however, will not be determined until the integration planning process begins.

A complete list of post-acquisition changes, including a possible name change, will be announced either at the time of or closely following closing.

McClain told Lube Report the two companies “expressed a mutual interest in starting discussions on a possible combination” in the fall of 2015 to expand each company’s portfolio and offerings.

The companies, which are both headquartered the Philadelphia area, will continue to operate independently until the transaction is completed either in the fourth quarter of 2017 or the first quarter of 2018. After the agreement goes through Houghton will no longer be a subsidiary of Gulf Oil.


By Katie Kellenberger • April 12, 2017

Lubes and Greases