Arysta is a global provider of crop protection solutions, including bio-solutions and seed treatment. The deal of $4.2bn is to be executed in cash consideration, subject to customary closing conditions and regulatory approvals.
The funding for US$4.2bn deal is as follows:
• $1.2bn of equity investment in UPL Corp by Abu Dhabi Investment Authority (ADIA) and TPG, a leading global alternative asset firm. ADIA and TPG will each invest $600mn for a combined stake of ~22% in UPL Corp.
• $3bn (~Rs21,000cr) through debt to be raised from MUFG Bank Ltd. and Coöperatieve Rabobank U.A. (Hong Kong Branch). The additional debt is expected to add finance cost of ~US$125mn with an interest rate of 4% to 4.5%. The debt is with a bullet maturity period of five years.
Expected benefits and synergies from the deal
• UPL will enhance its position as a global leader in agriculture solutions with a combined sales and EBITDA of ~US$5bn and ~US$1bn respectively with around 20% EBITDA margin (pre-synergies). UPL would get synergies from backward integration and supply management with 25-30% benefit coming towards cost of goods sold.
• Expected annual synergies of US$400-500mn in revenue terms and ~US$200mn in EBITDA terms.
• Combined free cash flow generation is expected to be US$600-700mn.
• Deal expected to be EPS accretive by Rs10-12 in FY20.
• UPL will have an integrated supply chain with a backward integrated manufacturing base in major markets and deep distribution capabilities across the globe to address needs of growers.
• Enhancement and penetration under cereals, wheat, speciality crops and bio-solutions.
The valuation of the deal is 9.9x EV/EBITDA (ex-synergies) based on acquired EBITDA of $424mn for the twelve months ended March 2018 (trailing EBITDA).
FY18 trailing valuation matrix for UPL – Arysta LifeScience deal
|Particulars (US$ mn)||UPL||Arysta LifeScience*||Combined value - post acquisition (Pre-synergies)|
|EBITDA margin %||20.0%||21.7%||20.7%|
|Premium over UPL's current valuation||18%|
UPL has existing net debt equity ratio of ~0.4x as on March 31, 2018. Post completion of the deal, the net debt to EBITDA ratio would rise and is likely to be in the range of 3.2x to 3.5. Nevertheless, the management stated that the additional leverage is manageable and it is possible to bring it down to 2.5x net debt to EBITDA ratio over one-year post completion of the deal.
The acquisition will give UPL access to a variety of patented products through collaborations and partnerships as well as enhance in-house R&D capabilities. The deal is expected to be completed by Q3FY19E or Q4FY19E.
Arysta is a global provider of innovative crop protection solutions, including biosolutions and seed treatment. Arysta's diverse crop protection chemicals control biotic stresses such as diseases (fungicides), weeds (herbicides), and insects (insecticides). Arysta reported revenue of $1,897mn, $1,817mn, and $1,741mn in CY17, CY16, and CY15, respectively.
Arysta has business presence in Africa, Middle east, Russia and Eastern Europe. In total, post-acquisition, UPL would have 13,000 product registrations.