Envalior’s integration tango, and what it means for Indian operations | Autocar Professional


Envalior’s integration tango, and what it means for Indian operations | Autocar Professional

In the boardrooms of DSM Engineering Materials and LANXESS High Performance Materials sometime in 2022 or even before, a familiar truth hung heavy in the air. These titans of the global materials industry, accustomed to fierce competition, were now contemplating a waltz of a different kind: a merger of their material businesses. The potential for synergy, the “holy grail” of M&A, was undeniable. But the industry veterans knew all too well the lurking devil: the intricate and often treacherous task of integration.

The behemoth to be born, Envalio Ltd, would inherit a sprawling footprint: Euro 4 billion in turnover, some 18 production sites and 14 R&D centre plants, and roughly 4,000 employees across Europe, Asia and the Americas. The increased scale and size gave Envalior a significant competitive advantage, putting it among the top three global companies alongside Celanese and BASF.

The executive search team, however, assuaged concerns about the size and manageability of the new company. Just months before Envalior’s April 2023 launch, they secured the appointment of Scotland-born Calum Grigor MacLean, as CEO to lead the giant.

MacLean boasts a well-stamped resume, having steered petrochemical, polymer, and specialty chemical firms across the globe. From 2015 to 2021, he captained Synthomer Plc, a mid-sized British specialty chemicals company. There, he orchestrated a comprehensive overhaul. This included not just a cultural refresh, but a strategic realignment and a growth spurt fuelled by both internal investment and a string of five well-timed acquisitions. MacLean also played an important role in the rise of INEOS, a major player in the chemicals sector. He was part of the founding management team, and over his 17-year tenure, his deal-making acumen shone through. He spearheaded the creation of two highly profitable joint ventures: Styrolution in chemicals and PetroIneos in refining. This experience equipped him with a deep understanding of integrating and consolidating blue-chip multinational chemical companies, a skillset which was considered valuable for the role of leading Envalior towards integration and its eventual profitability going forward.

MacLean’s career predates his time at INEOS. He cut his teeth in the chemicals industry with stints at multinational giants like International Specialty Chemicals (1992-1998) and BP Chemicals (1989-1992). His expertise has also been sought after in boardrooms beyond his executive roles. He served as a non-executive director for both Clariant and SABIC, a position he relinquished at Clariant in 2021.

“In the first 12 months, we’ve had to put these two businesses together,” MacLean told Autocar Professional during one of his recent India visits in Pune, early June.

Today, Envalior boasts a strong presence in sectors such as automotive and new mobility, electronics and electrical, and consumer goods markets. In the automotive segment, one area of particular focus stands out — lightweight yet robust materials. These allow manufacturers to shed weight, reduce friction, and develop components that can withstand extreme temperatures — all while minimising their environmental impact.

The integration challenge and how it was overcome

Merging the two businesses presented significant challenges from day one. Due to competition laws, there were limited discussions between the two parties beforehand, and those that did occur were at a very high level and lacked detail.

MacLean offered a candid assessment of the integration challenges, acknowledging the “inevitable overlaps” that lead to initial inefficiencies in any such amalgamation. Merging roughly ten production facilities from each legacy company, consolidating two innovation and sales teams, and the herculean task of unifying (still ongoing) two separate financial reporting systems — these were the necessary growing pains to forge a unified Envalior. This intricate dance was essential to create a company with a singular identity, culture, and market presence, he noted.

The three-year synergy plan encompasses various areas, including product range simplification, improved purchasing power, supply chain optimisation (eliminating duplicate warehouses), IT system consolidation, and sales force optimisation. The integration has yielded its rewards. MacLean pointed to the creation of “significant synergies.” Bulk buying power allows Envalior to secure better deals on raw materials, while cost optimisation and a broader product portfolio for customers contribute to the company’s bottom line.

Beyond the initial team integration, there were expectations for cost savings (synergies) from the merger. These initial estimates were primarily from an external perspective. MacLean and his core leadership team spent several months working with the combined organisation to develop a more detailed bottom-up plan. This plan identified significantly higher potential synergies than originally forecasted, demonstrating a strong fit between the two businesses.

Five-year strategic plan, Euro 20 million investment for expansion

Reflecting on the five-year strategic plan envisaged by the company, MacLean noted that even though both legacy businesses (DSM and Lanxess) had strong strategies, they were designed for smaller organisations with different focuses. The task in front of Envialor management was to combine these strategies into a clear vision for the merged entity, outlining the company’s direction and goals for the next five years. As is customary, this involved creating a five-year rolling plan, which will be updated and extended annually. The development seems significant, especially from the importance of the automobile industry, which forms roughly 50-55% of the company’s product output. The company remains hopeful of growing in line with or even ahead of the markets it operates in.

Envalior’s Indian operations benefit handsomely from the legacy of its blue-chip parents, Lanxess and DSM. Both companies strategically invested in state-of-the-art facilities, giving Envalior a head start. This translates to three underutilised, top-tier assets — a prime position for organic growth. The immediate focus is maximising output from these existing facilities. According to MacLean, the need for additional capacity hinges on several factors, including the growth rate of the industry and the company. 

MacLean anticipates the need for further capacity by 2027-2028 to support local sales and growth. To meet this target timeframe, a two-year lead time necessitates a decision by next year. Local management is currently evaluating potential options, including location, cost, and timeline. A final determination will be made later this year. The most probable scenario involves a strategic expansion at one of the existing plants, with an estimated investment of up to Euro 20 million.

Though focus remains on organic growth, company open to attractive M&A opportunities

As per MacLean, the company’s five-year plan doesn’t include any major merger and acquisition (M&A) assumptions. However, that doesn’t preclude the leadership team from considering them if the right opportunities arise. He added that the company has a strong track record of M&A success, and looking at a market like India, there might be opportunities to leverage their market share and technology through strategic acquisitions, both inside and outside India. While the company would certainly evaluate such opportunities, for the time being, the focus is on organic growth through innovation, new development and integration, he emphasised.

Report: Musk tells Tesla 4680 battery team, fix them or we’re done

Tesla still hasn’t solves its issues with the large-format 4680 battery cells Elon Musk reportedly…

It’s official: Mahindra Thar Roxx name confirmed, launch on…

Mahindra Thar Roxx will be offered with a petrol and a diesel engine that will…

Citroen Basalt coupe SUV interior teased in new teaser video, launch next month

By: HT Auto Desk | Updated on: 20 Jul 2024, 14:29 PM Citroen India has…