In his large cor­ner of­fice with a panoram­ic view of the south-west­ern tip of the Queen’s Park Sa­van­nah, ANSA McAL group CEO, An­tho­ny N Sab­ga III was in a re­laxed, up­beat mood on Tues­day af­ter­noon.

He is en­gaged in telling the sto­ry of the group’s US$327 mil­lion ac­qui­si­tion of 100 per cent of Bleachtech, a com­pa­ny based in Cleve­land, Ohio that op­er­ates two chlor-al­ka­li plants in that state and in Vir­ginia. Bleachtech is a prof­itable pro­duc­er of high pu­ri­ty bleach, hy­drochlo­ric acid and caus­tic so­da.

“Through su­pe­ri­or en­gi­neer­ing ex­per­tise, a unique man­u­fac­tur­ing process and strong cus­tomer ser­vice, Bleachtech has be­come the low-cost bleach pro­duc­er of choice in the Mid­west and Mid-At­lantic re­gions,” ac­cord­ing to a ANSA McAL news re­lease.

Al­most at the start of the in­ter­view, ​he tells the sto­ry of walk­ing out of the Bleachtech of­fices af­ter com­plet­ing the ne­go­ti­a­tions on the price of the com­pa­ny on March 17, 2023, St Patrick’s Day. He and An­dre Jef­fers, who was pro­mot­ed to the po­si­tion of chief strat­e­gy of­fi­cer of the ANSA McAL Group, ef­fec­tive Sep­tem­ber 1st, 2024, were greet­ed by a bliz­zard of snow. Sab­ga took this as a sign from God.

The trans­ac­tion took some time to close be­cause it re­quired reg­u­la­to­ry ap­provals from the Unit­ed States of Amer­i­ca Fed­er­al Trade Com­mis­sion and the Com­mit­tee on For­eign In­vest­ment in the USA. The reg­u­la­to­ry scruti­ny is be­cause the pro­duc­tion of chlor-al­ka­li is con­sid­ered to be an as­pect of the crit­i­cal in­fra­struc­ture of the US, be­cause of its im­por­tance in the pro­duc­tion of potable wa­ter.

The ac­qui­si­tion, he said, is “huge­ly trans­for­ma­tion­al” for ANSA McAL and a “com­ing of age and a ma­tu­ri­ty” for the group and ANSA Chem­i­cals, which serves most of the mu­nic­i­pal wa­ter needs of the en­tire re­gion.

Sab­ga de­scribed the ac­qui­si­tion as an im­por­tant step in the group achiev­ing its 2X growth strat­e­gy to be­come a $2 bil­lion prof­it be­fore tax com­pa­ny by 2027. The group’s prof­it be­fore tax for 2023 was $841.84 mil­lion.

“We have well pub­li­cised our goal to dou­ble the size, scale and im­pact of the group by 2027. This ac­qui­si­tion will add a sub­stan­tial­ly in­cre­men­tal com­po­nent to our busi­ness. This al­lows us to now, for all in­tent and pur­pos­es, to be the main sup­pli­er of chlor-al­ka­li treat­ment for two ma­jor states in the Unit­ed States. So it most cer­tain­ly un­der­pins the agen­da and the ob­jec­tive of get­ting to, and po­ten­tial­ly sur­pass­ing, 2x,”said Sab­ga.

He added, with Jef­fers chip­ping in, that if the 2X goal is es­sen­tial­ly an in­cre­men­tal $1 bil­lion in prof­it, the group es­ti­mates that the ac­qui­si­tion of Bleachtech is go­ing to add be­tween $240 mil­lion to $260 mil­lion in prof­it be­fore tax, which is about a 25 per cent in­cre­ment on earn­ings.

The op­ti­mism about the con­tri­bu­tion of the ac­qui­si­tion of Bleachtech to ANSA McAL’s earn­ings is based on the due dili­gence on the com­pa­ny’s earn­ings and its prospects for growth.

In a news re­lease, for­mal­ly is­sued on Wednes­day, ANSA McAL said the ac­qui­si­tion “is ex­pect­ed to be ma­te­ri­al­ly ac­cre­tive to ANSA McAL’s earn­ings in the first full year of op­er­a­tions in 2025.”

In the in­ter­view, Sab­ga said the pur­chase of Bleachtech would be ac­cre­tive to earn­ings af­ter “es­sen­tial­ly a full year of op­er­a­tion, over and above the debt re­pay­ment and the in­ter­est bur­den as­so­ci­at­ed with it.

“We ex­pect the prof­it would be ac­cre­tive to earn­ings dur­ing the course of the year, and would add about $1 earn­ings per share (EPS) or more in 2025, net of all debt pay­ments, of course” the ex­ec­u­tive said. ANSA McAL’s EPS in 2023 was $3. That means if the rest of the group’s earn­ings in 2025 were the same as in 2023, the pro­jec­tion is that the ac­qui­si­tion would re­sult in EPS of $4.

2X goals

The prospects of the ac­qui­si­tion’s con­tri­bu­tion to the 2X goal is al­so based on what ANSA McAL paid for Bleachtech and how the trans­ac­tion was fi­nanced.

Sab­ga said,"The ac­qui­si­tion price was based on a mul­ti­ple of EBIT­DA (earn­ings be­fore in­ter­est, tax­es, de­pre­ci­a­tion, and amor­ti­sa­tion) that we be­lieve re­flect­ed fair val­ue for the busi­ness, based on: i) how sim­i­lar, pub­licly trad­ed busi­ness are val­ued by the mar­ket; ii) his­tor­i­cal­ly, what busi­ness­es of this na­ture were pur­chased for and, iii) the find­ings with­in our due dili­gence process.

He dis­closed that Bleachtech’s 2023 rev­enues to­talled US$85.7 mil­lion and its EBIT­DA last year amount­ed to US$57.4 mil­lion, which Jef­fers de­scribed as “a very, very strong EBIT­DA mar­gin.” The EBIT­DA mar­gin is EBIT­DA/rev­enue, which means Bleachtech’s EBIT­DA mar­gin in 2023 was 67 per cent. That mar­gin was achieved, even though the com­pa­ny op­er­at­ed at 50 per cent ca­pac­i­ty.

Sab­ga not­ed that the plants have a bleach ca­pac­i­ty of 78 mil­lion gal­lons a year, but they are cur­rent­ly pro­duc­ing be­tween 32 and 37 mil­lion gal­lons a year.

Ques­tioned on why the plants were op­er­at­ing at 50 per cent ca­pac­i­ty, Sab­ga point­ed out that to ex­pand the mar­kets for chlor-al­ka­li would mean trans­port­ing the prod­ucts a long dis­tance. That meant, he sur­mised, that the pre­vi­ous own­ers may have giv­en pri­or­i­ty to their near­by cus­tomers, there­by pre­serv­ing their prof­it mar­gins.

“We feel that we can def­i­nite­ly seek to ac­quire more mar­kets and al­so ad­di­tion­al us­es for that vol­ume,” Sab­ga said. Jef­fers added that even op­er­at­ing at 50 per cent ca­pac­i­ty, the com­pa­ny was ex­treme­ly prof­itable.

Asked what would hap­pen if ANSA McAL were to dou­ble pro­duc­tion at the two plants, the group’s CEO said growth in pro­duc­tion vol­umes would mean “even more sig­nif­i­cant growth to that prof­itabil­i­ty, which is what we are see­ing.”

The com­pa­ny was ac­quired debt-free with some work­ing cap­i­tal cash left on its bal­ance sheet. That al­lowed ANSA McAL to lever­age the ac­quired com­pa­ny’s as­sets to bor­row the funds to pur­chase the com­pa­ny.

“We ex­pect EBIT­DA gen­er­a­tion to be in and around the US$50 mil­lion to US$60 mil­lion a year range over the next three years.”

Fi­nanc­ing the pur­chase

The US$327 mil­lion ac­qui­si­tion price was fund­ed by ap­prox­i­mate­ly 60 per cent debt and 40 per cent cash.

The debt com­po­nent of the ac­qui­si­tion cost was raised from two loan agree­ments with an ag­gre­gate sum of US$200 mil­lion. These com­prised a term loan of US$190 mil­lion and a sell­ers’ promis­so­ry note of US$10 mil­lion. Those agree­ments were en­tered in­to on No­vem­ber 1, 2024, which was the of­fi­cial clos­ing date of the trans­ac­tion.

The loan is se­cured by the US as­sets ac­quired by ANSA McAL and is guar­an­teed by the group and two of its sub­sidiaries, ANSA McAL Chem­i­cals and ANSA McAL Chem­i­cals Hold­ings, ac­cord­ing to the ma­te­r­i­al dis­clo­sure no­tice post­ed on the T&T Stock Ex­change web­site.

The term of the loan is five years. It is a se­nior se­cured loan, which means that the loan has pri­or­i­ty over all oth­er debt of the group and is se­cured by spe­cif­ic as­sets or col­lat­er­al.

The in­ter­est on the loan is at a float­ing rate, based on three-month SOFR, cur­rent­ly at 4.57 per cent, plus a 3.75 per cent mar­gin. The to­tal ini­tial rate would be 8.32 per cent, but in­ter­est rates in the US are cur­rent­ly trend­ing down­wards. SOFR is the Se­cured Overnight Fi­nanc­ing Rate, which is a bench­mark rate that mea­sures the cost of bor­row­ing mon­ey overnight in the Unit­ed States. It is cal­cu­lat­ed from ac­tu­al mar­ket trans­ac­tions.

The loan fi­nanc­ing for the trans­ac­tion was con­tem­po­ra­ne­ous­ly com­plet­ed in the US, ac­cord­ing to the no­tice. The US$190 mil­lion loan was arranged in North Amer­i­ca by Citibank NA, but was fund­ed by a syn­di­cate which in­clud­ed Citibank, among oth­er fi­nan­cial in­sti­tu­tions. Citibank was not the sole lender of the term loan, said Sab­ga.

Asked why ANSA McAL chose Citibank in North Amer­i­ca to arrange the loan and not a lo­cal or re­gion­al fi­nan­cial in­sti­tu­tion, Sab­ga said, “Giv­en the fi­nanc­ing was arranged in North Amer­i­ca, and that the tar­get was US based, it re­quired a lead arranger who had both lo­cal mar­ket pres­ence and knowl­edge of ANSA McAL as well as a North Amer­i­can foot­print and reach. It should be not­ed that all the mem­bers of the lend­ing syn­di­cate, in­clud­ing Citibank, are in­ter­na­tion­al banks with ei­ther re­gion­al phys­i­cal pres­ence or ex­pe­ri­ence lend­ing with­in the re­gion.”

The cash com­po­nent of the ac­qui­si­tion cost is about US$127 mil­lion, which in­clud­ed a com­bi­na­tion of ANSA McAL cash from the group’s trea­sury re­serves as well as sub­stan­tial US-dol­lar in­vest­ments that were liq­ui­dat­ed to part­ly fund the ac­qui­si­tion, Sab­ga told the Busi­ness Guardian.

Path to ac­qui­si­tion

In late 2022, ANSA McAL, in col­lab­o­ra­tion with search firm Chest­nut Hill Part­ners based in the US, iden­ti­fied a list of po­ten­tial, US based, ac­qui­si­tion tar­gets in the chlor-al­ka­li sec­tor with op­er­a­tions and tech­nol­o­gy sim­i­lar to ANSA Chem­i­cals Lim­it­ed. BleachTech was at the top of our short­list and in­ci­den­tal­ly, when we reached out, the share­hold­ers Richard Im­mer­man and Tim Maeg­ly were at the ini­tial stages of prepar­ing for a sell-side process through their ad­vi­sors Cit­i­zens Bank. The com­pet­i­tive sell side process com­menced in Q2 2023, ANSA McAL emerged as the pre­ferred bid­der in Q4 2023, con­clud­ed ne­go­ti­a­tions and signed a de­fin­i­tive SPA in Q2 2024 and fi­nanced and closed the trans­ac­tion on Nov 1st 2024.