Aug 18, 2023

Rico Group a perfect fit for Semperit in $216M acquisition

VIENNA, Austria—It was always going to be a trade-off for Semperit Group, operating under the notion that something must be lost for something greater to be gained.

As the company's Sempermed segment exits stage left, purchased by Harps Global Pte. Ltd. in December for $122.1 million, Rico Group GmbH enters stage right, bringing liquid silicone rubber production for niche markets with it.

"This acquisition ticked two boxes for us—the U.S. market and LSR," Kristian Brok, chief operating officer for Semperit, told Rubber News April 18. "With this acquisition we are adding on to our material and product offering."

Semperit agreed to purchase the Thalheim, Austria-based Rico Group, which had about $100 million in sales last year, for $216.4 million April 17. The agreement was signed in nearby Wels.

The divestment of Sempermed, which produced nitrile and surgical gloves as a standalone business unit, is expected to close in the second quarter of this year. The acquisition of Rico is expected to close in the third quarter of this year.

Rico Group brings about 500 employees into the fold for Semperit and represents the parent company's initial foray into LSR applications.

"We want to do a soft integration with Rico," Brok said. "Rico will be one of the cornerstones and building blocks of our future."

In terms of integration, Rico Group will be bolted on to Semperit Group, joining the company's remaining four industrial rubber product divisions.

"We want to give Rico the maximum liberty in its activities," Alexander Kleedorfer, director of brand management at Semperit, told Rubber News. "We want to keep the dynamic the company has. There will be alignment, but the company is to be left alone."

Brok added that Semperit has a "high respect for the achievements made at Rico."

"They are our fellow countrymen, and we have watched them from afar," he said. "If it's not broken, don't fix it. Isn't that what you say in America?"

Brok said Semperit had been pursuing Rico in 2021 and 2022, looking for more advanced polymer market access.

"We are very pleased that we managed to get to this team now," Brok said. "Rico has grown very fast, and they are a company I have followed from a distance for quite some time, probably half of the lifetime of the company.

"And they have done really, really well. It is a growth trajectory we hope to continue to maintain and build up."

Specifically, Rico has seen a compounded annual growth rate of about 16 percent since 2020, Brok said, with a recurring EBITDA of about $18.1 million.

The annual growth rate of silicone is expected to be around 7 percent CAGR globally until 2027, while the market for silicone applications in Western Europe and the U.S. amounts to approximately $8 billion.

"Semperit is our guarantee for continuity and growth, because Semperit is a company that understands our business, appreciates our Upper Austrian roots and can make three out of one-plus-one," said Alfred Griesbaum, one of the three owners and founders of Rico Group. "With this promising perspective, handing over to Semperit was easy for us as founders."

Rico Group, based in Upper Austria, comprises five companies across three locations, with three companies in Austria and one each in the U.S. and Switzerland.

They include Rico Elastomere Projecting in Austria; HTR (a tool hardening company) in Austria; Silcoplast in Wolfhalden, Switzerland; and Simtec Silicone Parts L.L.C. in Miramar, Fla., near Miami.

And it is this last location near Miami that has Semperit excited for growth on the continent. Semperit maintains a location in Newnan, Ga., that makes sealing profiles and elastomer sheeting, but the two locations will have separate customer draws.

"The (U.S.) location is adding a significant chunk of business to what we already have and a much bigger potential business," Brok said. "It is adding significantly to our footprint, overall sales turnover and employees in the U.S."

With the soft integration—meaning Rico will retain its branding and services in its entirety, at least for the foreseeable future—Brok reiterated he does not expect any spillover or redundancies between Georgia and Florida.

"There are some shared services, but they are separate," he said. "We have the ability to grow in Florida. The footprint there can easily be doubled."

The U.S. is not the only region with growth potential for Rico.

Rico and now Semperit have plans to expand the site in Thalheim, and there is room for expansion in Switzerland, as well, Brok said.

"The Thalheim site is being roofed as we speak, and we expect operations there to begin (in the expanded area) in 2023," Brok said. "We expect to be producing there once we have taken over. Right now we are looking at all the options.

"But the pipeline is there in both the U.S. and Switzerland."

Also attractive to Semperit is the LSR firm's technical prowess, especially as it relates to custom, high-tech tooling for LSR parts.

Rico is unique in that it also molds and extrudes the LSR elastomers and plastics, and fabricates parts to completion.

"They do everything from tool design to construction and the design of automation for the hardening process of the component," Brok said. "Building the production systems with the injection-molding machines ... they have mastered this very well. I'd call it '4.0-enabled' ... and we have the resources to bring operations to an even a higher level."

Rico Group's products are produced with single-, two- and multi-shot injection molding processes.

Specific end-use parts include ophthalmology and hearing aid components, coffee machine parts, overmolded products and personal care equipment.

With its ability to conduct high-volume runs, Rico Group can run "lights out" at night and on the weekends.

"We say the geists (ghosts) are running the shifts," Brok said.

While Semperit looks to leverage Rico's know-how and automation, Rico will benefit from Semperit's financial backing.

"What do we bring to the party? Financing. We are a listed company with the ability to maintain Rico's trajectory," Brok said. "The DNA and cultural fit is there."

Semperit has made no secret of its M&A posture coming out of the Sempermed sale, with executives describing the aggressive stance during the February 2022 year-end report.

"The focus of the strategic M&A activities will be on profiting from key trends, improving the geographical footprint, broadening the range of business activities within the industrial sector, and driving automatization, digitalization and circular economy," Semperit CEO Karl Haider said at the time.

The company was aware in 2020 that nitrile gloves were a necessary, and completely volatile, commodity—and a market that the foundationally stable Semperit wanted to vacate.

But the company stuck with Sempermed (which also produces surgical gloves) as the market fluctuated wildly through the pandemic.

That was until last year, when a precipitous decline in Sempermed's sales (about 50 percent year-over-year) led the group to divest the segment.

Fast forward one year, and the $1 billion Semperit Group has tacked almost completely toward industrial rubber products with its Semperflex, Sempertrans, Semperseal and Semperform divisions.

Revenue in continued operations (the industrial sector as well as production of surgical gloves) registered $858 million in net sales in 2022, a 30-percent increase over 2021 net sales.

EBITDA for continued operations came in at $110.6 million, an 86-percent jump over 2021.

The main product groups in the industrial sector are hydraulic and industrial hoses, conveyor belts, escalator handrails, window and door profiles, cable car rings, ski foils and products for railway superstructures.

"The goal is to serve existing and future markets faster, more effectively and more efficiently," Haider said. "In addition, the systematic continuous improvement across all areas of the company is intended to further improve the Semperit Group's competitive position and sustainability."

Some of those green fixes are coming in Odry in the Czech Republic, where Semperit is investing "three-digit millions of dollars" in the world's first CO2-neutral hose production facility.

"We are on a journey, and there is an environmental side to this journey," Brok said. "LSR has upsides and downsides in this regard, but in transition with this material is where we can assist ... not so much up front."

And as Semperit kept its ear to the M&A rail, ultimately it was the fellow Austrian firm Rico Group GmbH that came calling.

"They were established and had reached the size and age where they said this is about time to sell," Brok said. "This was something that had been planned as far as five years back. They fit in to more of a corporate structure, which ours is.

"We are not an LSR specialist. We want to expand our offerings into other areas—like high-end LSR tooling and niche markets. We are expanding our elastomer competence through new material know-how in liquid silicone, and we will strengthen our market access and presence across North America."

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