RHI Magnesita Announces Proposed Acquisition of Resco Group

RHI Magnesita has announced its intention to pursue the acquisition of Resco Group, a United States-based manufacturer specializing in alumina monolithics and a diverse range of basic and non-basic refractories, for an enterprise value potentially reaching $430 million.

Resco Group stands out as a prominent producer of shaped and unshaped refractories, catering to various industries including petrochemicals, cement, aluminum, and steel production. With a robust operational footprint, Resco operates across seven manufacturing facilities and two raw material sites in the US, along with two additional plants located in the UK and Canada. Notably, Resco's flagship brands, Rescobond and Rescocast, enjoy widespread adoption in refining and petrochemical applications worldwide. Under the ownership of Balmoral Funds, a California-based private equity firm with assets totaling $1.5 billion, Resco Group reported unaudited revenues of $252 million for the fiscal year ending December 31, 2023, accompanied by a Profit before Tax of $20 million. Furthermore, as of December 31, 2023, Resco boasted Gross Assets amounting to $191 million.

The proposed acquisition by RHI Magnesita holds substantial implications, particularly concerning the enhancement of local production capacities in the US and Canada. With approximately half of RHI Magnesita's US sales currently sourced externally, the acquisition aims to shift significant production volumes from non-US plants to Resco's US-based facilities. This strategic maneuver is poised to bolster supply chain resilience, diminish production lead times, and stabilize working capital, aligning closely with customer feedback and demand dynamics. RHI Magnesita's strategic vision extends beyond mere consolidation; the acquisition signals a strategic thrust towards fortifying its alumina-based refractories portfolio, thereby enriching its product offerings for US customers.

The anticipated synergies arising from the merger are projected to materialize over the medium term, driven by an overarching restructuring of the combined supply chain, expected to span approximately two years. This restructuring endeavor is foreseen to incur one-time costs amounting to €60 million, inclusive of restructuring initiatives across non-US plants. The envisaged synergies encompass a spectrum of operational enhancements, including supply chain optimization, working capital rationalization, logistics streamlining, supply integration, technology transfer, heightened recycling opportunities, and procurement efficiencies.

Expressing his sentiments regarding the acquisition, Stefan Borgas, CEO of RHI Magnesita, underscored its transformative potential, particularly in augmenting the company's regional production footprint and fortifying its commitment to local manufacturing paradigms. Borgas emphasized the pivotal role of Resco's expertise, particularly within petrochemicals, cement, and aluminum industries, domains in which RHI Magnesita has hitherto had limited presence. Moreover, Resco's endeavors in steelmaking align synergistically with RHI Magnesita's operational scope, thereby enhancing the collective portfolio diversity. Borgas commended Resco's sterling reputation, profitability, and cash flow resilience, anticipating a substantial financial contribution to the consolidated entity. He also expressed confidence in the amalgamated workforce's ability to set new benchmarks within the industry landscape.

The completion of the acquisition remains contingent upon fulfilling customary closing conditions, inclusive of regulatory approvals from merger control authorities. Anticipated to conclude in the second half of 2024, the acquisition signifies a strategic milestone in RHI Magnesita's growth trajectory, underlining its steadfast commitment to bolstering operational efficiencies, augmenting product portfolios, and fortifying customer-centric service paradigms.