The Acquisition
of Elix Polymers

Elix Polymers and Sinochem Group Co. Ltd

Based in Spain, Elix Polymers are a leading manufacturer of ABS (Acrylonitrile-Butadiene-Styrene) resins and derivatives in Europe. ABS is a common thermoplastic polymer used in products ranging from musical instruments to whitewater canoes. Elix themselves provide a broad array of material solutions that can be applied across healthcare, automative, appliance and electronic industries. In the past, they have been part of several multinational groups: first Germany’s Bayer AG, who subsequently sold them to Lanxess and Ineos, before being bought by private equity firm, Sun European Partners in 2012.

Sinochem Group Co. Ltd is one of China’s four state-owned petrochemical giants with some 60,000 employees worldwide. Sinochem International (Holdings) Co. Ltd is a subsidiary of Sinochem Group, specialising in new materials, agrochemicals, polymer additives and natural rubber (Stock Code: 600500.SH). Due to its high level of profitability, it has been ranked as first among the “100 strongest listed companies in China” by the World Economy and Politics of China Social Science Academy.

The Sale of Elix Polymers to Sinochem International Corporation

Sinochem International targeted the acquisition with the intention of introducing Elix’s patented ABS technology to the Chinese market and its own product portfolio. In a statement released on January 10th 2019 following the transaction, Elix said: “The integration … into a chemical group as important as Sinochem International will enable it to position the brand quickly in the Asian market”.

Sun European Partners, who had owned Elix for seven years, had made substantial progress in optimising production and quadrupling EBITDA (Earnings-before-interest-tax-depreciation-and amortisation). Consequently they were ready to make a profitable exit from the company. The fee remained undisclosed, though reports suggest Sinochem International paid Sun European Partners approximately €195m for the company in a cash acquisition.

As mentioned, the proposed intention behind the acquisition was to acquire the proprietary technology developed by Elix and in turn for them to enter the Chinese market. Following the closure of the deal the Elix CEO, Wolfgang Doering, stepped down and was replaced by an internal candidate, Diego Castañeda, who has been tasked with leading the company’s integration into the Sinochem Group. He had been an important part of the operational changes implemented under Sun European Partner’s ownership. Currently, no executive personnel from Sinochem International have joined Elix’s board.

Motivations for the Acquisition

Similar to other acquisitions made by state-owned enterprises (SOEs), there are often clear indications that the targeted acquisition was motivated by national strategic objectives on the part of the Chinese State Council. Although there is no explicit reference made to Made in China 2025 or the Military-Civil Fusion Strategy in any of the press releases, Elix’s knowledge of advanced materials makes it a strategic target for SOEs advancing China’s domestic proficiency in industrial sectors such as this

Where potential military applications are concerned, there is a growing trend towards the use of plastics and polymer matrix-based materials instead of metals in military equipment. This is particularly true where stealth is a priority as polymer matrix-based materials can help vehicles bypass detection methods such as radar, sonar and even infrared heat source systems. It is also possible to use polymers like ABS in 3D-printing which equally makes it viable for weapons design and related components.

That said, Elix’s relative size and significance to the Spanish economy makes it an unlikely candidate for the Chinese State Council to use as a point of political leverage against both Spain and the European Union. The key risk here is the stated intention of Sinochem to “onshore” Elix’s technological expertise from Europe to China. Access to the Chinese market is an admirable – and to some extent necessary – objective. Yet the acquisition route is still a fast track to the erosion of competitive advantage as an individual enterprise over time.

Conclusion

In our previous acquisition case on Aritex, Datenna noted the development of Spain’s investment screening practices – the Royal Decree-Law 8/2020 strengthening government power and aligning with the EU’s screening framework. This grants the government greater veto powers over foreign investments in strategic assets.

FDI regulations at the time of Elix’s purchase focused on restrictions in defence, energy, audio-visual and telecoms sectors. Today the Directorate-General for Investments extend that focus to “critical technologies” more generally. One wonders whether a leading manufacturer in new materials would now be a realistic acquisition target for Chinese SOEs in Spain – the new regulatory framework would undoubtedly present greater hurdles to the Chinese buyer. Either way, the Elix case demonstrates continued Chinese state interest in strategically significant European acquisition targets, despite growing objection to their purchase amongst European stakeholders.