Bayer ESP eyed by Bain, Cinven ahead of post-summer sale launch

Ryan Gould, Emma-Victoria Farr
26 July 2021

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Bain Capital and Cinven, the owners of Lonza Specialty Ingredients (LSI), are among parties conducting early work on Bayer's carve-out of its Environmental Science Professional (ESP) division, according to sources familiar with the matter.

Bain and Cinven are positioning for the launch of a process after the summer holiday period under sell-side adviser Bank of America, three of the sources said.

German chemicals maker Lanxess is also likely to explore an offer for ESP, one of the sources said. Buyout groups CVC and Astorg could also express an interest, two other sources added. ESP supplies pesticides and rodent protection to industry players.

A deal for ESP by Bain and Cinven would build towards an eventual initial public offering for LSI, whose sustainable, non-cyclical offering is likely to be rewarded by public markets investors, one of the sources said. The buyout groups agreed to acquire LSI for CHF 4.2bn (EUR 3.8bn) in February after a competitive auction process that also involved Lanxess.

Bayer could expect to fetch in excess of EUR 2bn for ESP, two of the sources said. A 10x EBITDA valuation multiple is seen to be at the "very bottom" of the range, one of the sources said, adding that increased appetite for speciality chemicals activities could see ESP sold in the region of 15x core earnings. DuPont's 2019 merger of its Nutrition & Biosciences business with IFF at 15x 2019 pro-forma EBITDA – including USD 300m in cost synergies – could provide a benchmark, the same source said.

More than USD 53.5bn (EUR 45.4bn) has been spent on speciality chemicals targets since the beginning of 2020, Dealogic data shows.

Prospective buyers are likely to grapple with ESP's intellectual property, one of the sources said. The question of whether the business will continue to invest in research and development under its new owner or shift its focus to being an end-point for its customers could change the equity story and makeup of the bidding field, he added.

Competition to land ESP, which has sales of around EUR 600m, is likely to be strong as financial sponsors eye a rare primary buyout opportunity, two of the sources said. "Very few opportunities to play buy-and-build like this come around," one of them added.

Representatives for Bayer, Cinven, CVC, Lanxess and Bank of America declined to comment. Bain and Astorg did not return requests for comment.