The purchase of Amanco in 2007 represented a challenge and an opportunity for Mexichem as it required a logistical strategy that would allow the company to optimise the supply of PVC resin, the primary raw material for piping production.
Following the acquisition of Amanco, Mexichem acquired Petroquímica Colombiana, a company located in Cartagena, Colombia, and a primary producer of PVC resin in the country. This acquisition further strengthened the synergies, as the geographic location of Colombia and the sea port allowed resin to be supplied to all Amanco plants located in the Andean region and in southern countries of the continent: Brazil, Argentina and Chile. The results have been remarkable. During the 2009 crisis, Mexichem supplied PVC resin needed for piping production to all of its plants in Latin America, sending the resin produced in Mexico to the plants in Mexico and Central America, and from Colombia to the plants located in the Andean and southern region of the continent.
Resin consumption for Amanco’s piping production accounted for more than 45 percent of Mexichem’s total resin production. Additionally, given the reduction of over 30 percent in the price of this input, Amanco’s margin increased. Colombia and Brazil also signed a free trade agreement under which resin exports from Colombia to Brazil are exempt from tariffs, giving Mexichem a competitive advantage. Resin sales also increased in that country since Mexichem’s prices are extremely competitive for a PVC resin deficit market such as Brazil.
The firm’s geographic diversification gives Mexichem a leadership position throughout all of Latin America. 55,000 points of sale in the region have created another series of synergies not only with the company’s traditional products but throughout its entire range. This geographical diversification also allows it to generate significant operating efficiencies by directing the production of different products according to the specific needs of each market and fully exploiting its logistics network.
Today, geographical diversification is a competitive advantage that is difficult to match, allowing Mexichem to be leaders in the Latin American market and to position itself as a global company exporting to virtually the entire world.
Generating efficiency
Having the pieces of a puzzle without knowing how to put them together is to lose the opportunity to create something wonderful. Mexichem has developed the ability to join these pieces and integrate them fully, in the process building a larger and more efficient company so that its operations can work together as if they were a completely synchronised timepiece in which each component is essential to the functioning of the whole.
Mexichem integrates each acquisition into the company’s operating philosophy and culture, guiding each business to its essence, identifying on a timely basis its main driving forces, and establishing an adequate strategy to make operations more efficient. Mexichem has a flat structure, under which decisions are made on the line and the outline of responsibilities and performance limits are clearly defined. Each member of the organisation knows the goals to be achieved and how to reach them. This allows the company to focus on the results and clearly monitor performance so as to make any necessary adjustments.
Furthermore, the company has created a considerable synergistic effect through integration and orientation, not only in its production operations but throughout the entire organisation. Interdependence and self-fulfillment drive productivity, raising it with each achievement. The synergies are not only visible in the results but are also created in daily operations where the integration of the different areas, from purchasing to after-sales service, takes place. At Mexichem, everyone knows the importance of fulfillment and the effect it produces throughout the entire value chain. Thus, by combining efforts, the result is much greater than the sum of the parts, and Mexichem achieves the synergies that are part of the organisation’s genetic code. The company also has an excellent technology platform which, together with its experience and structural capital, enhances its results. The SAP system has been a key tool to achieve these synergies, by standardising operations and, most importantly, providing real time information on all operations, regardless of location.
One of the most tangible results of the synergies Mexichem has achieved is the improvement made in operating margins, primarily through the systematic reduction of expenses and costs throughout the organisation. In recognition of this effort, for the past three years Mexichem has received the award for energy efficiency granted by the Comisión Federal de Electricidad (CFE), due to its significant reduction in electricity consumption in its many plants.
Mexichem has the largest production, in terms of tonnes/gallons/year, of PVC resins in the world, which puts it at the forefront of production technology for these products. Its performance levels in piping production are also among the most efficient in the world, significantly reducing production costs. During 2008 and 2009, Mexichem invested more than $144m in the modernisation, automation and efficiency of its piping plants throughout Latin America, increasing productivity and significantly improving margins.
Generating growth
Mexichem has achieved spectacular growth by following its core strategy of adding value to basic raw materials. In 2002, when sales were $283m and it generated about $29m in EBITDA, who would have imagined that in only seven years it would have sales of more than $2bn and be generating more than $500m in EBITDA.
The basis of this growth has been vertical integration, starting with salt and fluorite, in products of higher added value. This vertical integration has created a virtuous cycle of synergies by combining the various elements of the value chain to create a larger one, in which the benefits and attributes of the previous product are combined with the next.
This vertical integration favours sustainable growth and significant improvements in the performance of all the links in the chain. Mexichem established this strategic definition in 2003 and has since acquired more than a dozen companies in seven years with an investment of more than $1.9bn – of which only 50 percent has been financed through debt. The rest was financed with cash generated by the company and, at times, governed by its internal goal of maintaining a net-debt-to-EBITDA ratio of less than two to one with capital increases; this shows the control group’s commitment to the company and the contribution of stockholders to this goal.
Today the company has more than 40 production plants in 15 countries in America, including the United States. It leads in virtually all markets in which it participates. It is the largest producer of PVC resin and piping in Latin America, and the only piping producer fully integrated with its own raw-material supply. It has the largest fluorite mine in the world, with over 20 percent of the world’s production of fluorspar, and is the second largest producer of hydrofluoric acid in the world – the only one in the Americas integrated with its raw-material supply. All this positions Mexichem for greater growth and long-term viability in the fluorochemical industry. Furthermore, its purchase of Ineos Flúor positions the company as the only integrated producer of fluorocarbons.
Such growth has had a common factor: the synergies that have been a deciding factor in the acquisition process. If, when analysing a potential acquisition, Mexichem determines that it does not have the possibility of generating synergies with existing operations, the company is unlikely to proceed with it.
The best example of the results of the synergies Mexichem has generated through acquisition is the performance of the acquired companies compared with their previous performance. In 2006 Amanco registered EBITDA of $84m and, after its acquisition in February 2007, generated EBITDA of $138m; in 2008 it generated $208 and, in 2009, $207m. This proves not only Mexichem’s ability to generate productive synergies but to maintain them over time.
