Avecia Group PLC

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Avecia Group PLC

PO Box 42, Hexagon House, Blackl
Manchester
M9 8ZS
United Kingdom
Telephone: +44 161 740 1460
Fax: +44 161 795 6005
Web site: http://www.avecia.com

Private Company
Incorporated: 1999
Employees: 2,700
Sales: £485 million ($776 million) (2003)
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325320 Pesticide and Other Agricultural Chemical Manufacturing; 325510 Paint and Coating Manufacturing; 325998 All Other Miscellaneous Chemical Product Manufacturing

Avecia Group PLC is in the process of redefining itself as a focused specialty and fine chemicals group. Originally part of Zeneca (and before that, part of Imperial Chemical Industries), Avecia has shed a number of its former operations in order to concentrate itself around a new core of biotechnology products and fine chemicals, specifically niche pharmaceutical intermediates, as well as genetically engineered chemicals and products, including a vaccine for anthrax, on the one hand, and "neoresins" on the other. Under neoresins the company includes its fast-growing light-emitting polymers (LEP) segment, the world's leading manufacturer of LEP-based screens for portable telephones and other applications. As part of its paring down, Avecia sold off or shut down a number of its subsidiaries, including its largest revenue-generator, the Stahl leather chemicals group in 2002, as well as its color additives business, sold to Lubrizol, and its biocides (primarily water treatment and pool cleaning products), sold to Arch in 2004. Motivation for Avecia's streamlining comes in part from the group's owners, investment groups Cinven and Investcorp, which have indicated an interest in cashing in on their investment through a public offering or sale of parts or all of Avecia by the middle of the 2000s. The company in the meantime is making strategic acquisitions to boost its core operations, such as its 2003 purchase of the chirals operations of Synthon Chiragenics. Avecia is led by CEO Jeremy P. Scudamore. In 2003 the company's sales stood at £485 million.

Born from a Breakup in the 1990s

Imperial Chemical Industries (ICI) long held the title of the United Kingdom's largest company. Formed from a merger of the country's three largest chemical companies—Nobel Industries, British Dyestuffs, and Brunner, Mond & Co—in 1926, ICI grew into an internationally operating conglomerate with more than 500 widely diversified subsidiaries operating throughout the world. ICI's focus tended toward the production of dynamite, chlorine, dyes, metals, and a variety of general chemicals, as well as agricultural chemicals and leather treatment chemicals. In general, the company concentrated on bulk chemicals, such as fertilizers, leaving the specialty chemicals realm to competitors.

By the 1970s, ICI had become a massive—and massively bloated—organization, generating little profit in proportion to its revenues. Part of the group's difficulties came from its over-dependence on low-margin bulk chemicals, as well as its production of its own invention, polyethylene, which by then was already under pressure from rising competition from Asian producers. Fertilizer also remained a core company product. Yet ICI's range of hundreds of products left it unfocused, even while it depended on a single area, bulk chemicals, for some 40 percent of its total products.

This situation started to change in the early 1980s, with the arrival of Sir John Harvey-Jones as the head of the company in 1982. Harvey-Jones began a ruthless cost-cutting program, closing several dozen of ICI's outdated manufacturing sites and slashing thousands of jobs from its payroll. Harvey Jones began the long process of reshaping ICI, reducing its reliance on bulk chemicals, shifting its focus from polyethylene and instead stepping up the group's investments in pharmaceuticals and fine chemicals, while also building up its specialty chemicals offering.

By the end of the 1980s, pharmaceuticals and fine chemicals—now grouped under a new division, ICI Bioscience—had grown into the group's largest revenue and profit centers. Meanwhile, ICI had been developing its specialty chemicals division, which was to form the core of the later Avecia. That business took off in the early 1980s, with the launch of a new type of polyester, produced by using genetically altered bacteria. The resulting thread found use as surgical stitching materials. It also pointed the way toward the group's entry into the biotech market in the 1990s. Other important Specialty Chemicals division products included biocides, used as chlorine alternatives for water treatment, and the development of a biodegradable plastic, Biopol. In the late 1980s and early 1990s, ICI's Specialties division also refined a myco-protein-based meat substitute, Quorn.

In the meantime, ICI had gone on a new buying spree, making a number of large-scale acquisitions. Among these were the chemicals division of Beatrice Corporation, in 1984, and Glidden Paint in 1986. The following year, after Harvey-Jones had retired, replaced by Sir Denys Henderson, the company bought Stauffer Chemical, a move that made ICI one of the world's largest agro-chemical companies, with sales of more than $20 billion. That acquisition, too, was to play a major part in the development toward the formation of Avecia.

Corporate Mitosis in the 1990s

Nonetheless, Specialties remained ICI's smallest division, accounting for less than 10 percent of its revenues. In the meantime, ICI once again appeared to be plagued by its inability to achieve focus. Although ICI had rebuilt itself around a dual core of chemicals and pharmaceuticals, including specialty chemicals, the two sides were in fact unrelated businesses and failed to achieve synergies between them. At the same time, each division's profits were too heavily reliant on a single product line. With prices falling rapidly in the bulk chemicals and pharmaceuticals market, accompanied by a global economic slump at the beginning of the 1990s, ICI's lagging stock price left it the target of a potential takeover by Hanson Plc, which began acquiring ICI shares in 1990.

ICI defeated that effort, and restructured in order to block any future takeover attempts. Nonetheless, ICI's share price stagnated, as the company slipped into losses. By 1992, ICI's losses mounted to nearly £600 million. The company at last gave in to shareholder pressure, announcing its plan to accomplish what it called a "hive-down" of its operations, splitting off its ICI Bioscience division as an autonomous company. The process, which required a team of several hundred over most of the year to come, involved separating ICI's nearly 500 subsidiaries into two separate operations. At the end of 1992, ICI announced a new name for its Bioscience division: Zeneca.

With more than 16,000 products and sales of more than £4 billion ($6.5 billion), Zeneca operated in three primary divisions: Pharmaceuticals, its largest operation; Agrochemicals; and Specialties, which included the group's work with Biopol and Quorn, as well as strong business providing pharmaceutical intermediates and other fine chemicals, grouped as the Life Science Molecules division. The Specialties division also grouped ICI's former leather chemicals business, operating under the Stahl name.

Zeneca's major focus, however, remained on its pharmaceutical development, with specialty chemicals receiving only a small share of the company's research and development funding into the late 1990s. In the meantime, the wave of mergers consolidating the global pharmaceutical industry began creating a new class of drug giants. A similar process was occurring in the specialty chemicals field, as a number of major players emerged to claim dominance in their targeted niche sectors. At the same time, the investment community began favoring "pure play" pharmaceutical and specialty chemicals companies.

These factors convinced Zeneca to undergo a new round of corporate "mitosis" and in 1998, the company announced its intention to sell off its specialty chemicals operations. The company began looking for buyers in early 1999. Yet Zeneca itself made the first move, announcing its intention to merge its pharmaceuticals side with Sweden's Astra, forming AstraZeneca in April of that year.

In the meantime, Zeneca Specialties began preparing itself for its de-merger by adding to its range of business. The company took a step in what was to become a major corporate direction in April 1999, when it acquired Covion Organic Semiconductors, a maker of light-emitting polymers (LEPs) owned by Hoescht, through its Aventis Research & Technologies wing. The purchase complemented Zeneca Specialties' existing businesses in Neoresins and other high-technology chemicals, which included an array of chemicals for inkjet technologies. LEPs, brighter, less expensive, and more energy efficient than LEDs, promised to become a dominant display technology at the dawn of the 21st century.

Finding an industrial buyer willing to purchase Zeneca Specialties as a single entity proved difficult. For a short period, AstraZeneca considered splitting the division up into its component parts, a move that might have generated a higher value for the company. Instead, AstraZeneca decided to open up the bidding to institutional investors, and in May 1999 reached an agreement to sell Zeneca Specialties to a management buyout sponsored by investment groups Cinven and Investcorp.

Company Perspectives:

We hold ourselves accountable for delivering agreed targets and objectives. We will not hurt anyone, annoy or alarm our neighbours or harm the environment. We set high standards and always strive to improve our performance. We recognise and celebrate outstanding performance. We add value to our customers by being creative and flexible in meeting their needs. We are fair, honest and open with each other and in our relationships with customers, suppliers and host communities. We respect and value the diversity and talents of everyone in Avecia and positively support their development.

Under terms of the £1.3 billion ($2.1 billion) buyout agreement, Cinven and Investcorp, and CEO Jeremy Scudamore, agreed to maintain the company as a single entity for at least a year following the sale. The newly independent company then adopted a new name, Avecia Group PLC. (In December of that year, Zeneca sold off its agrochemicals business as well, into a merger with Novartis creating Syngenta.)

Avecia began business with operations in five primary sectors: the fast-growing Life Science Molecules (LSM) and Specialist Colors and Display; and the more stable, if not mature, Biocides, color additives, and Stahl leather chemicals groups. Avecia quickly turned its expansion focus on its fastest-growing businesses, and in September 1999 made its first acquisition, of Boston BioSystems, for $6 million. The U.S.-based company, founded in 1996, had already gained a leading place as developer of oligonucleotides—also known as DNA molecules—complementing Avecia's own newly established DNA medicine plant, opened in Scotland in 1998 and expanded in mid-1999.

Narrowing Focus in the 2000s

LSM remained Avecia's key growth area in 2000, with an agreement to acquire the ribozyme manufacturing process and technology from Colorado-based Ribozyme Pharmaceuticals. In June of that year, the company acquired Torcan Chemical Ltd., based in Ontario, Canada. The company also boosted its Neoresins operations, forming Image Polymers, a 50–50 joint venture partnership with Mitsui Chemicals to develop biomodal toner resins.

Avecia now began the process of narrowing its focus to its high-growth businesses. In 2001, for example, it sold off its Novacote packaging, adhesives, and coatings business to Chimica Organica Industriale Milanese, in Italy. Then in 2002, the company sold the Stahl leather chemicals business—which represented more than one-third of Avecia's total revenues—to Investcorp for EUR 375 million ($335 million). Sales of non-core operations continued, including the group's mining chemicals business, bought by Cytec Industries in 2003; its color additives operation, acquired by Lubrizol in January 2004; followed by the sale of its biocides division to the United States' Arch Chemicals, for $210 million, in March of that year.

The pared-down Avecia nonetheless continued to boost its LSM and electronics materials operations. The group's fine chemicals division expanded its scope in 2003 with the purchase of the proprietary chiral technologies and other operations from Synthon Chiragenics in the United States. Yet a number of investment analysts criticized Avecia's drive toward focus, in part because much of the group's cash flow depended on the businesses sold off by the beginning of the century. Nonetheless, with Cinven and Investcorp said to be looking to cash in on their investment, the stripped down company appeared a strong candidate for a public offering—or even an acquisition by a larger partner. In the meantime, Avecia remained a leading player in the global specialty chemicals market.

Principal Subsidiaries

Avecia Inc. (U.S.A.).

Key Dates:

1992:: Imperial Chemical Industries (ICI) announces its intention to split off its Biochemicals division.
1993:: The Biochemicals division is spun off as Zeneca, and includes ICI specialty chemicals operations, renamed as Zeneca Specialties.
1998:: Zeneca announces plans to split up into three separate companies, including the creation of a new company for its specialties operations.
1999:: Zeneca Specialties acquires Covion LEP manufacturing group in Frankfurt, Germany; Zeneca merges with Astra, forming AstraZeneca, which then sells off Zeneca Specialties in a management buyout backed by Cinven and Investcorp; the company is renamed as Avecia, and acquires Boston BioSystems in a move to boost its Life Science Molecules (LSM) operations.
2001:: Avecia begins selling off noncore operations to focus on LSMs and NeoResins, selling Novacote packaging, adhesives, and coatings business to Chimica Organica Industriale Milanese, in Italy.
2002:: The company sells off the Stahl leather chemicals operation to Investcorp for EUR 375 million.
2003:: The company acquires chiral technologies from Synthon Chiragenics; the company sells its mining chemicals division.
2004:: The company sells its color additives and biocides operations.