Aiming to expand in high-tech areas such as aerospace and solar, the St. Paul-based adhesives maker H.B. Fuller has agreed to buy Royal Adhesives & Sealants for nearly $1.6 billion from its owner, the private equity firm American Securities.
Royal, which has its headquarters in South Bend, Ind., has annual pretax earnings of about $140 million on sales of $650 million. During its most recent fiscal year, H.B. Fuller earned about $280 million on $2.1 billion in sales.
“Our goal is to be the best adhesives company in the world,” H.B. Fuller CEO Jim Owens told analysts on a conference call last week.
Royal has changed hands a few times. In 2015, American Securities bought it from another private equity firm, Arsenal Capital Partners. Arsenal, in turn, purchased it from Quad-C Management in 2010.
Royal has made plenty of acquisitions of its own over the years. Its sales were only $35 million in 2003 before it made 18 different purchases.
Owens argued that Royal is a good fit for Fuller. On the call, he frequently brought up Royal’s high-end engineering adhesives, such as those used to assemble airplanes. He also noted that Royal has cutting edge technology for bonding metal to rubber, a notoriously tricky application.
Royal, Owens said, complements Fuller’s existing adhesives businesses. For example, Fuller is strong in flooring, whereas Royal makes adhesives for roofing.
Overall, Owens said, the purchase will generate $50 million in annual cost and growth synergies for Fuller.
But Moody’s says the acquisition might be pricey. The ratings agency is putting Fuller under review for a credit downgrade, noting that the purchase will triple Fuller’s debt and “significantly increase” its financial risks.
The purchase, Moody’s says, “is inconsistent with the company’s previously stated conservative fiscal policy.”