By Gareth Armstrong
Chemical services business Omnia Group’s acquisition of a 90% stake in Umongo Petroleum, effective from 1st March this year, will create new opportunities for Omnia’s chemical business by broadening its current offering and strengthening its sub-Saharan Africa strategy.
Umongo’s business is complementary to Omnia’s chemical business Protea Chemicals which has a wealth of experience in the distribution of chemicals and polymers in sub-Saharan African countries such as South Africa, Namibia and Kenya. The addition of Umongo’s base oil, additive and lubricant business to Protea Chemicals will broaden its current product offering and create opportunities for it to grow its business.
Base oils and additives are predominantly used in the production of lubricant products for both automotive and industrial applications. Umongo has supply and distribution agreements for the supply of both additives from Chevron Oronite, and base oils from Chevron Products Company, into the South African and sub-Saharan Africa markets. Chevron Oronite develops and markets quality additives that improve the performance of fuels and lubricants while Chevron Products Company provides a reliable global base oils supply through its production facilities. Umongo, as a supplier of these products to several of the largest lubricant, oil and petroleum companies, is well placed to benefit from the move from Group 1 to Group 2 base oils arising from the changes in global emission standards and improvements in technology.
Umongo has also recently acquired 100% of Orbichem Petrochemicals, the distributor of the Ergon range of products in South Africa and sub-Saharan Africa. Ergon is a leading global producer of specialty naphthenic oils with its primary product range consisting of insulating oils (transformer oils), base oils (bright stock to enhance viscosity) and process oils (rubber processing). Umongo also represents other global chemical companies including Evonik and BASF.
Another positive aspect of the transaction will be the retention of Umongo’s management team who have built the business over many years.
In terms of the agreement, Omnia will acquire the 90% stake in Umongo for R780-million, apportioned between an upfront cash payment of R618.5-million, an earn-out cash payment of up to R121.5-million and a retention amount of R40-million. The earn-out cash payment is directly linked to the achievement of performance milestones by management over a three-year period to the end of February 2020 with a maximum amount payable in years one and two being R40.5-million. Of the amounts earned on an annual basis, the first R45-million will be retained in respect of various warranties and indemnities and will be released at a future date. The maximum aggregate earn out less the R45-million retention amount is R76.5-million and is payable to the vendors over the three year period.
The remaining 10% of the company will continue to be held by the current chief executive Boston Moonsamy. In terms of the agreement, Mr Moonsamy will remain chief executive for five years and Mahmoud Homayoun, the founder and current chairman will remain involved in the merged group for four years as a board member and specialist advisor.
Umongo will become a subsidiary of Omnia and fall under the chemicals division in the consolidated results but will continue to operate as a stand-alone entity within Omnia. The deal is subject to a number of conditions and will be funded through Omnia’s existing general borrowing facilities. It is expected to be finalised by the end of the year.
Rand Merchant Bank (RMB) acted as sole financial and debt advisor to Omnia. RMB’s close collaboration and long-standing relationship with Omnia enabled it to provide a comprehensive corporate and investment banking solution, supporting Omnia’s vision for growth.
Armstrong is a corporate finance executive at Rand Merchant Bank