Italmatch: The making of an Italian chemical giant

Italy’s entrepreneurial culture has led to an abundance of small chemical companies across the country. None has grown to become a major multinational corporation with billions in sales, but this could be about to change. Specialty chemical producer Italmatch Chemicals—driven by Sergio Iorio, its charismatic CEO of 20 years—is threatening to break the mold.

An expected uptick in sales of Italmatch’s materials for sustainable technologies combined with the company’s plan for one or two substantial acquisitions in the next couple of years could see Italmatch’s annual sales grow to $1 billion from about $600 million today.

If so, the growth would continue a trend that began in 1997, when Iorio bought into Italmatch as a minority shareholder. At that point, the company was a stand-alone factory supplying phosphorus solely for making the striking surface on matchbooks. Annual sales were less than $18 million.

While Italmatch’s growth has been remarkable, 2020 marked a sobering pause. Plummeting business at the start of the pandemic conspired to cause a 13% drop in Italmatch’s sales in 2020 compared with the year earlier. According to financial analysts, Italmatch’s debt now looks heavy. Any designs the firm has for hitting $1 billion in sales may need to be reconsidered.

As CEO, Iorio knows the pandemic’s impact on the financial ledger, but he prefers to focus on how the firm’s employees got Italmatch through the pandemic and how that bodes well for the future.

“We didn’t know the extent of the crisis. In March and April 2020 everything was absolutely dark,” Iorio recalls. Among the market shifts that occurred at the start of the pandemic, a rapid drop in demand for energy hit the firm’s water treatment chemicals and detergents for the oil and gas sector.

At that point, Iorio was forced to apply cost-cutting measures across the company. Rather than cut jobs, though, his executive team cut their own salaries by 30% and looked for other ways to trim costs. Many employees contributed to a solidarity fund. In the end, not one of Italmatch’s 955 employees lost their job in 2020, Iorio says.

The outcome is a nod to the values of profit sharing and partnership with employees that Iorio says he brought to Italmatch in 1997. These values continue to play an important role in the way the company is managed today, Iorio says.

Back in 1997, Italmatch had just 20 workers, and one product—phosphorus—that it made only for manufacturers of matches. Initially, Iorio was chief financial officer, chief marketing officer, and head of recruitment. “In the first month I had to do everything—issuing invoices to customers, paying suppliers, and writing the checks to the workers,” Iorio says.

Iorio quickly recruited a cadre of managers, some of whom are still employed by Italmatch. “They are the backbone of the company today,” he says.

The investment firm Bain Capital now owns the majority of Italmatch. But in 1997, the firm’s backer was 21 Invest, an Italian venture capital firm. “21 Invest told me to pull out my entrepreneurial spirit,” Iorio says. He did that by targeting new applications and customers outside the match business. One of Italmatch’s first successful new businesses was using phosphorus as a raw material for flame retardants for plastics.

“Our second big success was phosphorus-based antiwear additives for automotive lubricants,” Iorio says. This business emerged after Italmatch secured a low-cost supply of elemental phosphorus by forming a joint venture in China. The venture ensured the company had a steady supply at a time of global phosphorus scarcity and made it a highly attractive partner.

Auto industry suppliers soon began to call on Italmatch for products—including lubricant and fuel additives—that the Italian firm had never made before. Breaking into such new fields enabled Italmatch to increase sales over a decade to about $120 million.

“But by 2008 more or less we had exploited all the opportunities that we had for organic growth,” Iorio says. And so Italmatch began an acquisition spree. Its first, and arguably its most important, acquisition was AkzoNobel’s Italian lubricant and specialties business, which had a plant in Arese near Milan.

The AkzoNobel purchase enabled Italmatch to make phosphates, esters, and polymers. “This acquisition opened up a completely new world of organo-specialties to Italmatch,” Iorio says. By introducing new chemistry and making the most of the plant with its many batch reactors, Italmatch increased the pretax profit generated by the former AkzoNobel plant from $2.4 million annually to more than $14 million.

More than 10 acquisitions around the world came next, the most recent coming in January. Iorio says each of the early acquisitions added value across the company’s four product divisions of water treatment, lubricants, performance products, and flame retardants.

And yet, Italmatch’s aggressive acquisition strategy has raised eyebrows among some financial analysts because of the debt it has created—$829 million at the end of 2020. The firm’s debt-to-profit ratio of over seven “is high,” says Sebastian Bray, an analyst at the investment bank Berenberg. And Italmatch’s recent dip in financial performance hasn’t helped.

Iorio declines to say whether he is concerned about the company’s debt. According to Italmatch’s financial report for 2020, debt “remains under strict control.”

And in keeping with his optimistic nature, Iorio still plans to make one or two substantial acquisitions that could push the firm’s sales closer to $1 billion. “We would consider mid to large acquisitions to speed up the process,” Iorio says. But he also expects Italmatch to experience strong organic growth, especially in materials for sustainable technologies, such as those used in electric vehicles.

In a boost for its sustainable-product strategy, Italmatch was recently chosen to participate in three projects partly funded by the European Commission to develop advanced materials for lithium-ion batteries.

Italmatch’s involvement includes a precursor for the battery electrolyte LiPF6; a process for extracting metals such as cobalt, nickel, and lithium out of old lithium-ion batteries using chelating agents; and specialty greases that work with brakes for electric vehicles. Lubricants for the brakes of combustion engine vehicles are exposed to high temperatures, while lubricants for electric vehicles must be effective at ambient temperature, Iorio says.

Italmatch’s participation in the European electrolyte project builds on an R&D effort the firm began 3 years ago to create safer and more durable electrolytes for lithium-ion batteries. The company currently produces about 1 metric ton of liquid electrolyte precursor each month. “The product works,” Iorio says. In the coming years Italmatch hopes to also produce precursors for solid electrolytes.

Italmatch’s latest acquisition, in January, was its purchase from Israel Chemicals of intellectual property for RecoPhos, a process for recovering elemental phosphorus from waste. The Italian firm has since been awarded European Commission funding to further develop the technology to recover phosphorus from the ash generated by industrial incinerators.

“Phosphorus is very difficult to extract, so we are trying to introduce the concept of urban mining,” Iorio says.

Italmatch’s future will involve electric vehicles, circular production, waste recovery, and desalination technologies, Iorio says. “We are starting the process for moving into sustainable products now. The aim is to have more than 50% of sales from sustainable products in the next 5 years,” he says.

Italmatch continues to recover from the economic effects of the pandemic and aims to maintain a tight grip on its debt. But rather than dwell on such issues, Iorio is preparing for another wave of substantial growth. If his record is anything to go by, expect Italmatch to break the $1 billion sales mark within the next few years.