Leaders in Industrial Process Fluids Combine to Form Quaker Houghton
Quaker Chemical Corporation and Houghton International have combined to create Quaker Houghton, the global leader in industrial process fluids to the primary metals and metalworking markets. Along with the new name, the company has revealed a new logo and brand representing the combined companies. The company will continue to be listed on the New York Stock Exchange and trade under the “KWR” ticker symbol.
A strategic combination is formed
The combined $1.6 billion revenue company employs 4,000 associates serving 15,000 customers worldwide. Quaker was founded in 1918 and Houghton in 1865.
“We are rooted in companies commonly acknowledged as authorities in industrial fluids and valued experts in customer processes,” says Michael F. Barry, chairman, chief executive officer, and president of the new company, who previously served Quaker Chemical in similar capacities. He continues: “Our similar cultures and values, combined with the talent and resources we bring to Quaker Houghton, create exciting opportunities to deliver innovative solutions that will help our customers’ operations run even more efficiently and effectively.”
The company’s combined breadth of product and service offerings can be found in end-markets such as aerospace, aluminum, automotive, machinery, can manufacturing, industrial parts manufacturing, mining, offshore, steel, and tube and pipe industries.
With its expanded products and services portfolio, the company expects that cross-selling opportunities will facilitate continued above-market growth. Specific products the company offers include metal cutting and forming fluids, corrosion protection fluids, specialty hydraulic fluids, and steel and aluminum rolling oils. In addition, legacy-Houghton customers will benefit from Quaker’s strength in specialty greases, high-pressure die casting, mining specialties, surface treatment and bio-based lubricants, while legacy-Quaker customers will now have access to Houghton’s heat treatment quenchants, offshore hydraulic fluids, metal finishing products and a broader metal removal fluids portfolio.
“Our foundation will be the same customer-intimate operating model that has been key to the success of our customers,” says Michael F. Barry. “Moving forward together, we will draw upon our rich history and shared expertise to enhance our product and service offerings and continue to deliver value-added service expertise to our customers.”
Value creation for shareholders
The combination of Quaker Chemical and Houghton International nearly doubles the size of either company with trailing twelve-month revenue as of June 30, 2019 of $1.6 billion. The company expects to achieve significant cost reductions as a result of the combination and has increased its estimate of cost synergies to $60 million from $45 million. The cost synergies are broad based and are expected to come from three major areas: Asset Optimization (17 percent), Logistics and Procurement (35 percent) and Operational Efficiencies (48 percent). The cost synergies are expected to be fully realised on a run-rate basis by the end of year two, with ~$20 million being achieved in year one, ~$45 million in year two and the full $60 million in year three, reflecting 100 percent achievement as the company exits year two. On a calendar year basis, the cost synergies achieved are estimated to be ~$5 million in 2019, ~$35 million in 2020, ~$50 million in 2021, and $60 million in 2022.
The company has utilised a top consulting firm over the past two years to help with its integration planning efforts and they will continue to assist the company during the integration.
In addition to cost synergies, the company expects that its growth strategy will create additional value over time. Revenue-based synergies, such as cross-selling, will be an important contributor to growth going forward. The legacy product portfolios of both Quaker and Houghton can now be offered to the combined, complementary customer base, where 14,000 of the 15,000 total customers are unique to one company or the other. The company believes the revenue synergies are achievable and will be significant over time, beginning after year one. In the first year, the company’s focus will be to maintain service levels for its customers and ensure no supply chain disruptions, while successfully executing its integration plans. In year two, the revenue synergies will begin to be visible as the company expects to grow above the market by 2 percent to 4 percent as it has in the past. The company also expects to continue to grow through acquisitions which remain part of its core growth strategy.
In the short term, the company will focus on paying down debt, but will continue to consider smaller acquisitions that can create value. Both Quaker and Houghton have long histories of building value through acquisitions.
“Today is a historic day for our businesses,” said Michael F. Berry. “We are finally beginning our journey as Quaker Houghton and are now the leading global supplier of industrial process fluids to the metals and metalworking markets. Two years from now, we expect to have an enterprise that will be integrated and generating over $300 million of adjusted EBITDA on a going-forward basis. More importantly, we will be well-positioned to continue to achieve above-market growth organically driven by our differentiated business model and the cross-selling opportunities created by our combination.
“While we are certainly a leader in our chosen markets, there is significant growth potential for this new company. We estimate that Quaker Houghton’s revenue of $1.6 billion represents less than 20 percent market share in a more than ten-billion dollar addressable market. The near doubling of the size of the company today gives us greater scale to invest in new technologies and make future acquisitions. We are very excited about the future and the opportunities that lie ahead for Quaker Houghton and what it means for our customers, our employees, and our shareholders.”