Chemicals company Omnia Holdings is acquiring a 90% stake in Umongo Petroleum to strengthen its chemicals cluster.

The R780-million transaction was a logical step in Omnia’s development, group FD Wayne Koonin pointed out on Thursday, adding that Umongo would complement the company’s existing Protea Chemicals business, broadening its current product offering and strengthening its sub-Saharan Africa strategy.

“This transaction should be value accretive, given the attractive market fundamentals, as well as Umongo’s strong standalone business operations. We are pleased that we will be retaining Umongo’s experienced and talented team who have built this business over many years,” said Koonin.

The acquisition consideration is apportioned between an upfront cash payment of R618.5-million, an earn-out cash payment of up to R121.5-million, linked to the achievement of performance milestones over the three-year period to February 28, 2020, and a retention amount of R40-million.

The remaining 10% of the company will continue to be held by Autumn Storm, an entity in which current Umongo CEO Boston Moonsamy is a shareholder.

Moonsamy will remain CEO for five years, while Umongo chairperson and founder Mahmoud Homayoun will remain involved in Umongo for four years as a member of the board and a specialist adviser. Other key members of the management team will continue to be employed by the business.

Umongo operates a fully outsourced supply chain and logistics business model, using accredited storage facilities, transporters and other related service providers to import, store, process and deliver raw materials to customers. In addition, Umongo offers a full range of technical support to its customers.

Umongo has supply and distribution agreements with various entities in the Chevron Group, a leading integrated energy company, for the supply of both additives and base oils into the South African and sub-Saharan African markets.

Base oils and additives are predominantly used in the production of lubricant products for both automotive and industrial applications.

Importantly, with the changes in global emission standards and improvements in technology, the move from Group I to Group II base oils will continue to be a key driver of growth in the market. In South Africa, Umongo is a supplier of these products to several of the largest lubricant, oil and petroleum companies.

Umongo has also recently acquired 100% of Orbichem Petrochemicals, the distributor of the Ergon range of products in South Africa and sub-Saharan Africa.