Potential buyers are displaying strong interest in the sale of Japanese chemical company JSR’s Elastomer division ahead of the final round of bidding, with industry watchers saying that price offers are likely to be the key to a successful deal.
JSR has selected global investment bank GCA Advisors to manage the sale, industry sources said on Friday (February 19). Potential buyers are conducting due diligence via virtual a data room and on-site due diligence on core facilities ahead of the final round of bidding, which is scheduled for early or mid-March.
Numerous Japanese chemical companies and Lotte Chemical have joined the race. JSR is also said to have approached LG Chem, but it is unlikely to take part.
“The business conditions in which the Elastomer division operates are not positive,” said a source, adding, “Potential buyers are conducting due diligence conservatively.”
Lotte Chemical is highly likely to participate in the final round of bidding as it is said to be studying the target with strong interest.
The key issue is likely to be the price. The division is not expected to fetch a high price due to its poor financial performance and gloomy business conditions, a source said.
Elastomer division is likely to be valued at an enterprise value/earnings before interest, taxes, depreciation, and amortization multiple of around five times.
“Manufacturing companies are generally valued at a multiple of around 10 times. But the price of JSR’s Elastomer division is likely to be discounted due to its continuing operating losses and the impact of the pandemic,” said the source.
JSR had expected the division to record an operating loss of 14 billion yen for 2020, down 7.8 times compared to a year ago, after losing 5.6 billion yen between April and June and 7.1 billion won between July and September. It recorded an operating loss of 1.8 billion yen in 2019.
Elastomer was the only one of JSR’s four divisions to run at a loss during those two periods last year. The division recorded revenue of 99.3 billion yen from April to December of last year, down 27% from a year earlier.
“Potential buyers are currently valuing the company based on last year’s figures,” said an industry source, adding, “The key is how much acquisition price potential buyers will offer amid the poor financial performance.” (Reporting by Byung-yoon Kim)