Multinational firms are quietly snapping businesses of small Indian companies. The latest to join the list is US chemicals giant Huntsman that is buying out the chemicals business of small local firm Laffans Petrochemicals Ltd for an undisclosed amount.
Laffans, that has a market cap of around Rs 30 crore, saw its share price rocketing 20% in early morning trade on Monday to hit the upper circuit limit for a day’s trade at Rs 39.1 after the deal was announced during the weekend.
"The acquisition is subject to certain terms and conditions and is expected to occur in the first half of 2011. This acquisition builds on the successful manufacturing alliance between the two companies which was signed and announced in December 2009," Laffans said in a disclosure to the stock exchanges.
Located in Ankleshwar (India) the Laffans chemicals business manufactures amines and surfactants. It has 130 employees with annual sales of approximately $45 million.
The Laffans chemicals business will be integrated into the Performance Products division of Huntsman and is expected to be immediately accretive to earnings. Daniele Ferrari, President of the Performance Products Division at Huntsman said, in a statement, "In addition to the recently announced expansion of our polyetheramine facility in Singapore, the acquisition of this business is strategically important as we look to meet the rapid growth in demand for other amines within Asia. A stronger manufacturing presence in India will enable us to better support our customers and their growth specifically within the Indian economy."
"This acquisition will bring total annual Huntsman Corporation sales in India to approximately $260 million or 3% of total sales. The Laffans chemical business is complementary to our existing technology and product offering and introduces exciting potential for additional product development," he added.
Laffans Petrochemicals intends to utilise the proceeds from the sale of the chemicals business to develop its logistics, warehousing and agency activities with mutually beneficial partnerships within the Indian chemicals industry, including the Huntsman group, where it sees valuable opportunities to build on its extensive experience and network, it said in a disclosure.
Sandeep Seth, managing director of Laffans Petrochemical Ltd who built a business from scratch some 16 years ago said, "The strength of a global network is becoming a critical success factor in our industry, and Huntsman’s reputation is a substantial asset in this global arena."
Laffans is involved in petrochemical derivatives for supply to the paint and automobile industries. Its ethylene oxide derivative products plant was set up with technical assistance from Reliance Industries. The unit was in close proximity to plants of Reliance and IPCL who supplied ethylene oxide, its basic raw material.
Major customers of the company include Kansai Nerolac, Berger Paints, Asian Paints, Castrol, Kalyani Brakes and Pidilite Industries. Its products are sold under the Laffcols brand. They find application in the adhesives, ceramics, cosmetics, leather processing, pharmaceutical, textiles, inks, paints, lubricants and paper industries.
This deal comes on the back of a handful of such transactions involving MNCs buying out businesses of small Indian firms. For instance, French giant Schneider acquired the electronic security system business units of Mumbai-based Zicom and Legrand acquired the switchgear business of small electrical equipment firm Indo Asian.
This indicates consolidation of various industries from the bottomup side. This trend shows how MNCs are not restricting themselves to potentially the largest companies in the industry while promoters of small firms too are open to selling their businesses at the right premium.