Target Information

Elkem ASA has announced an agreement to acquire Polysil, a prominent Chinese manufacturer specializing in silicone elastomers and resin materials. With a strong foothold in the baby care and food-grade silicone sectors, as well as in the electronics and medical markets, Polysil offers a complementary product portfolio that aligns with Elkem's strategic goals. The company operates from Zhongshan in Guangdong, China, and employs over 400 staff members.

Polysil possesses advanced technological capabilities in the production and development of Heat Cured Rubber (HCR), Liquid Silicone Rubber (LSR), specialty resins, and Pressure Sensitive Adhesives (PSA). With two production facilities and a dedicated research and development center staffed by over 50 scientists, Polysil boasts a robust operational and developmental framework. In 2019, the company projected revenues totaling RMB 612 million, with an EBITDA of RMB 110 million.

Industry Overview in China

The silicone industry in China has been experiencing rapid growth, driven primarily by increasing demand in multiple sectors including automotive, healthcare, consumer goods, and electronics. As one of the largest consumers of silicone globally, the Chinese market represents significant opportunities for manufacturers. Notably, approximately 50% of all silicone rubber consumption in China occurs in the South, where Polysil has established strong market presence.

With the ongoing industrial upgrades in China, the need for high-performance silicone products is forecasted to rise. The government’s support for innovation in materials science further enhances growth potential, particularly for companies that can leverage advanced manufacturing technologies. The trend towards environmentally friendly and sustainable materials is also influencing product development in the silicone sector.

Elkem’s investment in Polysil positions the company strategically within this booming market. By harnessing Polysil’s established capabilities, Elkem can enhance its competitive edge across various end-use industries. Moreover, the synergetic relationship between Polysil's manufacturing prowess and Elkem’s existing market positions is expected to yield fruitful collaborations and innovations.

Overall, the evolving landscape in China's silicone industry, characterized by rising consumption and technological advancements, presents a favorable backdrop for the growth of Polysil under Elkem's ownership.

Rationale Behind the Deal

The acquisition of Polysil aligns with Elkem's ongoing growth and specialization strategy. This move is expected to solidify Elkem's market position in specialized silicone segments across China. The complementary nature of both companies' product offerings will facilitate enhanced supply chain efficiency and innovation, leveraging Elkem's upstream capabilities to supply raw materials and intermediates.

Additionally, gaining access to Polysil's established market presence and technological expertise presents significant opportunities for expansion and product development. As stated by Michael Koenig, CEO of Elkem, the synergies created through this acquisition are anticipated to drive future growth for both Polysil and Elkem.

Information about the Investor

Elkem ASA, founded in 1904, is a global leader in silicon-based advanced materials. The company is publicly traded on the Oslo Stock Exchange and is headquartered in Oslo, Norway. With operations spanning the entire value chain from quartz to specialty silicones, Elkem has positioned itself in key markets, including specialty ferrosilicon alloys and carbon materials. As of 2018, the company reported revenues of 25.9 billion NOK and employed approximately 6,200 staff across 27 production sites in 28 countries.

Elkem’s extensive experience and commitment to innovation have made it a trusted supplier of high-quality materials in diverse industries. The acquisition of Polysil represents a strategic initiative for Elkem to bolster its footprint in Asia, particularly in the rapidly growing segments of silicone products.

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In analyzing the acquisition of Polysil by Elkem, it is clear that this move could be quite beneficial for both parties involved. Given the robust demand for silicone products in China and the synergies that can be realized from the integration of operations, Elkem is well-positioned to enhance its market share in this vital region. Polysil’s strong presence and product offerings in niche segments such as food grade and medical silicones will provide valuable contributions to Elkem’s existing portfolio.

Notably, Polysil's R&D capabilities will be instrumental in developing innovative solutions tailored to meet evolving market demands both domestically and globally. Elkem’s investment into these competencies ensures a forward-looking approach that capitalizes on emerging trends in the silicon materials sector.

Furthermore, the strategic timing of this acquisition aligns with the broader industry growth trajectory in China. As the country continues to prioritize technological advancements and quality standards, Elkem and Polysil can leverage this trend to reinforce their competitive advantage.

Overall, this acquisition appears to be a strong strategic investment for Elkem, leveraging Polysil's established operations and market expertise to drive further growth in a dynamic industry.

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