Information on the Target

On November 1, 2021, DKSH announced the signing of an agreement to acquire a majority stake in the joint venture with Shanghai Huizhenghang Chemical Co., Ltd. (RBC), a leading distributor of specialty chemicals in China. Established in 1992 and headquartered in Shanghai, Shanghai Huizhenghang specializes in the distribution of additives, resins, and pigments primarily used in coatings and ink applications. The company employs approximately 60 staff members and serves customers across Eastern, Central, and Southwestern China.

This acquisition marks a strategic move for DKSH, aimed at strengthening its foothold in the specialty chemicals and raw materials distribution market across the Asia-Pacific region.

Industry Overview in China

The specialty chemicals industry in China represents significant growth potential, with the country being the largest chemical distribution market in the Asia-Pacific region. The increasing demand for high-performance materials across various sectors, including automotive, construction, and electronics, has driven a rise in specialty chemicals applications.

In recent years, the Chinese government has implemented favorable policies to boost the chemical manufacturing and distribution sectors, enhancing the environment for investments and partnerships. These policies focus on innovation, sustainability, and improving supply chain efficiency, which are critical drivers for the growth of specialty chemicals.

Furthermore, with a large domestic market and the increasing trend toward digitalization in the distribution channels, companies are proactively seeking collaboration opportunities to enhance market reach and operational capacity. This trend is particularly notable as manufacturers seek to diversify their supplier bases while ensuring quality and reliability.

As the demand for specialty chemicals continues to grow, companies operating within China have the opportunity to leverage their local expertise combined with international best practices to drive innovation and expand their product offerings.

The Rationale Behind the Deal

The acquisition of Shanghai Huizhenghang Chemical Co., Ltd. aligns with DKSH's strategic vision to enhance its market position within the specialty chemicals industry. By gaining access to an established distributor with strong market penetration, DKSH aims to enrich its portfolio of supplier products, specifically in the coatings segment.

The joint venture is expected to be immediately accretive to earnings, with DKSH initially acquiring a 70% interest and planning to acquire the remaining 30% stake over five years. This phased approach allows for integration and optimization of operations while minimizing financial risk.

Information About the Investor

DKSH is a leading market expansion services provider, with a strong presence across Asia and extensive expertise in market development, logistics, and distribution. The company focuses on enabling clients to grow their businesses in new and existing markets through its well-established networks and customer relationships.

With a commitment to operational excellence and customer service, DKSH has built a solid reputation in the specialty chemicals sector, making it a key player in facilitating entry into high-potential markets. The company's international experience paired with local insights positions it advantageously for this strategic acquisition.

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This acquisition represents a noteworthy investment opportunity for DKSH, as it not only enhances market share but also showcases an effective strategy of leveraging local expertise while ensuring quality distribution. The financial performance of Shanghai Huizhenghang, evidenced by its net sales of approximately CHF 25 million and solid profitability metrics, indicates a stable foundation for future growth.

Moreover, the projected increase in revenues from the joint venture substantiates the potential for a positive return on investment. The phased acquisition structure mitigates risk while providing ample opportunity to integrate operations effectively.

Given the robust growth trajectory of the specialty chemicals market in China, combined with DKSH's strategic initiatives, this investment could yield significant long-term benefits. The merger is likely to position DKSH favorably amidst growing competition while creating synergies through the integration of products and services.

In conclusion, partnering with Shanghai Huizhenghang is a strategic move that not only strengthens DKSH's market presence but also diversifies its portfolio with high-quality specialty chemicals aimed at supporting various industries.

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