Acquisition of Spain’s Elix Polymers grants China critical access to European new materials
At Datenna, our China experts continuously track and conduct detailed investigations into the acquisitions of European and US firms by Chinese entities. Through a series of articles in our resource library, we highlight striking acquisition case studies, analysed based on Datenna’s in-depth, unique data on China’s techno-economic landscape. This article elaborates on the acquisition of Elix Polymers in Spain.
Short read
- In January 2019, Spanish-based Elix Polymers was acquired by Sinochem International Corporation.
- Elix Polymers is a world leading manufacturer of advanced polymer materials that has military equipment applications.
- Sinochem International Corporation is a subsidiary of Chinese state-owned giant, Sinochem Group Co. Ltd, specialised in new materials, agrochemicals, polymer additives and natural rubber.
- The acquisition has gained Sinochem Intl. Corporation access to Elix’s patented technologies in polymer-based materials.
Elix Polymers and Sinochem Group Co. Ltd
Based in Spain, Elix Polymers is a leading manufacturer of Acrylonitrile-Butadiene-Styrene (ABS) resins and derivatives in Europe. ABS is a common thermoplastic polymer used in products ranging from musical instruments to whitewater canoes. Elix provides a wide range of material solutions that can be applied across healthcare, automotive, home appliances and electronics industries. In the past, the company has been part of several multinational groups: firstly 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 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 their 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 previously mentioned, the proposed intention behind the acquisition was to acquire the proprietary technology developed by Elix and introduce it to the Chinese market. Following the closure of the deal, Elix’s 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.
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 behalf 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 similar industrial sectors.
Dual-use potential
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.
Nevertheless, 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. The Directorate-General for Investments extended 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.