Belgian M&A Award Winner Recticel: Divestments as a Defense Strategy

This article was previously published on houseofexecutives.be.

Until about five years ago, Recticel referred to itself as a chemical company with polyurethane as its core business, pushing it through technology into various product lines and applications. The company had five main activities: the automotive industry (with two branches), sleep comfort, technical foams, and insulation. In recent years, there has been a significant shift in focus: the new Recticel would continue without the parts related to the automotive industry and sleep comfort, concentrating on technical foams (Engineered Foams) and insulation.

Olivier Chapelle, the CEO of Recticel, outlines the scale of Recticel in 2022: “We will close the year with a turnover of around 1.25 billion euros, achieved by about 4,000 people in 28 countries, including China, India, Turkey, Morocco, the US, and most European countries.”

How the rollout of a strategy was abruptly interrupted

It happened in 2021. Everything was going according to plan with the rollout of the new strategy: the two branches of Recticel related to the automotive sector were successfully separated, the divestment of the sleep comfort division was in progress, and the closing of the acquisition of FoamPartner was completed. Until May 2021, when the Austrian company Greiner launched a hostile public bid on Recticel shares at a significantly undervalued price.

Olivier Chapelle testifies: “The bid was not good for Recticel: not for the employees, not for the customers, not for the suppliers, and certainly not for the shareholders. The challenge was clear: we had to immediately explore our options, with our backs against the wall. At that moment, it was crucial to surround ourselves with the very best advisors to thoroughly explore all possibilities.”

From white knights to green light from the competition watchdog

Olivier refers to an intense ‘adventure’ filled with uncertainty and stress: “First, we sought so-called white knights as a possible solution, but they were not found. Instead, we came across Carpenter, an American company – a world reference in polyurethane foam – to whom we could sell the part of our business focused on Engineered Foams (technical foams, exactly the part Greiner was targeting). Carpenter represented a strong strategic fit for the deal. But because the hostile takeover bid was still ongoing, we couldn’t just execute this, it required a step-by-step plan,” explains Olivier.

The plan involved determining the amount for a deal and obtaining approval from the Board of Directors. The amount was set at 656 million euros, and the so-called poison pill was unanimously approved by shareholders on December 6, 2021. The day after, the deal with Carpenter was signed, marking the start of the practical implementation. This involved a series of carve-out activities, while from the beginning, a concentration issue in the United Kingdom was under scrutiny. In 2022, a series of investigations began at the CMA (Competition and Markets Authority, the UK regulator), where Recticel had to provide several solutions and answers. These were finalized in the fall of 2022, signaling the ‘green light’ for the closure of the deal. The next steps are currently underway: once two factories in the UK are sold, the closing will be official. Olivier expects this to happen sometime in the first quarter of 2023.

A new strategy stemming from the new strategy

The defense strategy of selling the Engineered Foams division to Carpenter immediately meant a redesign of the strategy Recticel had recently embarked on. Instead of focusing on two of its former activities (insulation and technical foams), the new strategy became an exclusive focus on the insulation market. And that choice came at an opportune moment: “Look, it’s very clear: 30 to 40 percent of the global CO2 emissions come from heating or cooling buildings – even ordinary homes. Do you know which energy is the greenest in the world? The one we don’t use. Reducing energy consumption is the message, and you do that on a global scale by massively improving insulation. And that just happens to be the segment we are focusing on 100 percent. We are in the right business,” says Chapelle proudly.

Navigating through the storm: a sturdy ship with a clear destination

Looking at the future through rose-colored glasses at Recticel, now that an economic crisis looms and cost-cutting is more crucial than ever? According to Olivier, three crucial factors have acted as catalysts for global awareness of energy efficiency: “First and foremost, the long, hot summer with all the associated consequences for energy consumption. Then, the war in Ukraine, with side effects impacting everyone’s wallet and unprecedented inflationary pressure. And finally, the realization that energy dependence on another country is unacceptable.”

Olivier believes that the global awareness that we need to address energy scarcity is beneficial to his business. But he remains realistic: “We don’t see everything through rose-colored glasses. We also see that building materials have become much more expensive, and many companies and households find it challenging to find the necessary funds to invest in energy efficiency. The subsidies and funds available under Europe’s Green Deal only help partially. In the short term, Recticel is truly in a storm: we face very challenging market conditions. But our ship is sturdy, and we are confident it will reach its destination.”

Ambitious expansion

And that goal is not small: in 2022, Recticel announced a full doubling of its insulation revenue by 2025, to around 800 million euros. The recent acquisition of the Slovenian company Trimo, a maker of insulation panels, is proof that Recticel is serious about its ambitions. For Olivier, expansion will only accelerate once the deal with Carpenter is finalized: once the two factories in the UK are sold, Recticel will have fresh funds from the mega-deal to work with. Their expansion will likely translate into further acquisitions and consolidation, expanding capacity, and organic growth. This is how they hope to achieve their long-term objective.

Reflection on the M&A Award

Olivier looks back with satisfaction on his Award for Best Large Cap Corporate Deal. For him, the combination of Recticel and Carpenter is a perfect match from the standpoint of the product, technology, and geographical coverage. He finds it absolutely wonderful how everyone benefits: both employees and suppliers, customers, and shareholders. The value created for shareholders was already evident in the evolution of the stock price.

Chapelle credits everyone who made the deal possible through all the complexity and uncertainties it entailed: his management team, the Board of Directors, and the specialized advisors and dealmakers. “We were 100 percent aligned with the Board of Directors. I take away the lesson that, when you work together as a team, there is always a solution. Therefore, I also gladly offer tips for other executives (in case they ever face a similar situation): choose the best advisors, don’t shy away from any solution, keep thinking out of the box, and be flexible.”

We conclude the interview with a statement that says a bit more about the personality of Recticel’s CEO: “I have not criticized anyone or anything throughout this complex deal, and I will never do so. For me, it was crucial to leave political games aside and focus purely on the business, that’s it!”

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