Leaders in industrial process fluids combine to form Quaker Houghton

Quaker Chemical Corporation and Houghton International have combined to create Quaker Houghton (NYSE: KWR), the global leader in industrial process fluids to the primary metals and metalworking markets. Along with the new name, the company 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. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the United States.

The combined company employs 4,000 employees, serving 15,000 customers worldwide.

Quaker Chemical was founded in 1918 and Houghton International in 1865.

“We are rooted in companies commonly acknowledged as authorities in industrial fluids and valued experts in customer processes,” said Michael F. Barry, chairman, CEO, and president of the new company. Barry, who previously served Quaker Chemical in similar capacities, went on to say, “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 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.

The combination of Quaker Chemical and Houghton International nearly doubles the size of either company with trailing 12-month revenues as of June 30, 2019, of USD1.6 billion. 

The company expects to achieve significant cost reductions as a result of the combination and has increased its estimate of cost synergies to USD60 million from USD45 million. The cost synergies are broad-based and are expected to come from three major areas: asset optimization (17%), logistics and procurement (35%), and operational efficiencies (48%). The cost synergies are expected to be fully realized on a run-rate basis by the end of year two. On a calendar year basis, the cost synergies achieved are estimated to be ~USD5 million in 2019, ~USD35 million in 2020, ~USD50 million in 2021, and USD60 million in 2022. The company has utilized 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% to 4% 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. 

The final purchase consideration at closing of the combination was comprised of approximately USD170.8 million in cash; the issuance of approximately 4.3 million shares of common stock to the Hinduja Group and other former owners of Houghton International, comprising 24.5% of the stock of the combined company; and the refinancing of approximately USD660 million of Houghton net indebtedness. This purchase consideration does not reflect the cash proceeds from the required divestiture which is discussed below.

To fund the purchase, the company borrowed a total of USD930 million at close under its new USD1.15 billion credit facility.

The company estimates that its annual interest expense at today’s interest rates, including the cost to convert a portion of the term loan to a fixed rate as required by the lenders, will be in the range of 3.4-3.6%.

In addition, the company divested certain product lines at closing in compliance with the United States Federal Trade Commission and European Commission requirements. The company received approximately USD37 million from the buyer, Total S.A. The revenue of the divested product lines was approximately USD50 million, approximately 3% of the combined company’s revenue.

In addition to Barry, Quaker Houghton’s management includes existing leaders from both legacy companies. The newly formed executive leadership team is comprised of:

• Joseph A. Berquist, SVP, Global Specialty Businesses & Chief Strategy Officer
• Jeewat Bijlani, SVP, Managing Director – Americas
• Dieter Laininger, SVP, Managing Director – APAC
• Adrian Steeples, SVP, Managing Director – EMEA
• Mary Dean Hall, SVP, Chief Financial Officer & Treasurer
• Kym Johnson, SVP, Global Human Resources, CHRO
• Wilbert Platzer, SVP, Global Operations, EHS & Procurement
• Dr. Dave Slinkman, SVP, Chief Technology Officer
• Robert T. Traub, SVP, General Counsel & Corporate Secretary

Quaker Houghton now has an 11-member Board of Directors, consisting of the eight directors from Quaker Chemical and three directors nominated by the Hinduja Group. The three new independent directors of Quaker Houghton are the following former Board members of Houghton International:

• Sanjay Hinduja
• Ramaswami Seshasayee
• Michael J. Shannon