Chart Industries, Inc. is aiming to expand its cryogenic business to Italy, India and the Middle East after its acquisition of VRV s.p.a.
As part of a strategic realignment of the business, Chart purchased VRV for €125m (approx. $147m based on current exchange rates), plus existing debt (just under €70m, or $83m) and divested Caire, its oxygen business, to Japanese company NGK Spark Plug Co., Ltd. for $133.5m.
Chart is a leading diversified global manufacturer of highly engineered cryogenic equipment used from the beginning to end in the liquid gas supply chain.
The American company has domestic operations located in eight US states and international engineering and manufacturing in Australia, China, the Czech Republic, Germany and the UK.
The acquisition of VRV importantly adds the Italian company’s valves to Chart’s industrial gas to liquids offerings.
Chart CEO Jill Evanko says there will also now be a shift in focus with a more global outlook after the acquisition.
“We have changed our segmentation,” Evanko said on a conference call.
“In the prior structure, our segments were not balanced from a revenue perspective with the distribution and storage segments being significantly larger than the others and North American centric. This created missed opportunities regionally.
“The new segment in commercial structure supports the focus on our core cryogenic expertise allowing us to take advantage of the new geographic and market opportunities that come from the VRV acquisition as well as utilising our newly launched 80-20 process to achieve the cost synergies from the acquisition.
“The BioMed segment has two products categories – oxygen related or respiratory, and cryobiological. Respiratory products are $150m of annual revenue. The cryobiological products are approximately $80m of annual revenue and are used for storage and transport, animal breeding and life science applications.
“With the announced agreement to sell the oxygen related business from the former biomedical segment, we have moved the remaining piece, the cryobiological, into the distribution and storage western hemisphere.
“This decision was made to focus our capital allocation and growth efforts on our cryogenic engineering expertise and products.”
Evanko says the restructure will see business grow as it gives Chart improved access to high growth markets in India and the Middle East.
“VRV expands our market access to Italy and India as well as throughout Europe, Asia pact and the Middle East,” Evanko said.
“The [global] footprint expansion will help to optimise our manufacturing. Also of importance is the addition of the European location for E&C (Energy & Chemicals) manufacturing that has a furnace for shell-and-tube heat exchangers and can be utilised for air-cooled heat exchanger production as well. This builds on the expansion into Europe that the Hudson’s fans business brought to Chart last year. Historically, Chart AC is 80% North American and having a heat exchanger presence in Europe will allow us to penetrate non-North American markets further.
“This expands Chart to Indian market for the first time and immediate access to Italy in a market that is difficult to enter organically.
“The addition of VRV offers the potential European location for us to produce LNG tanks without significant capital investment.
“All of our customers, including our long-standing industrial gas guys, should benefit from the expanding global footprint that will allow us to offer the highest quality product.
“India is a market that has been growing at over 15% or more a year. The size of that market is comparable to the total Asia Pact market just in one country itself. It’s a country that generally purchases from within its own geography, so India to India. The access to us is having a main location in Chennai. There is also an engineering presence via VRV in India that allows us to have direct access to a good set of engineers coming out of the university locally there. The size of that market is in the hundreds of millions of dollars and is expected to grow at high digital growth.
“The number one expansion is from the market access that we didn’t previously have primarily in Indian and Italy. Additionally, there are some European customers we previously were unable to penetrate and have access to and that is certainly an area we can get into.”
Cryogenic pumps and valves
Acquiring VRV has opened up the opportunity for Chart to get into the cryogenic pumps and valves business and Evanko sees the potential for growth.
“Having a cryogenic valve is good for us from a vertical stand point but also extends our total solution offering for our industrial gas customers,” Evanko said.
“We’ve been looking for cryogenic pumps and valves which are different from the common pumps and valves that are used. Through VRV we get the valve, which is a very reliable design, over the years we have not seen a competitor that has been successful in building a product with the same level of performance.
“This expands us both from a vertical integration play to not having to go outside to buy those valves but also is used in storage tanks, transport tanks and the back of trailers.
“Previously our offering was fairly thin on the exploration, pipeline and treatment areas and through VRV will be extended with a shell-and-tube heat exchanger product. With the cryogenic valve, you can see that they add an offering not only to industrial gas end users but also energy end use.”
Chart expects there to be significant cost savings.
“Chart has over 7,000 suppliers with only 89 suppliers that have over a $1m to spend annually,” Evanko said.
“VRV has over 4,000 suppliers many of which are localized near the plants. There is significant opportunity for streamlining and leveraging our combined volume going forward.”
Brothers Alessandro and Federico Spada Spada will be staying on after Chart’s acquisition.
“We are extremely pleased with the willingness with which Alessandro and Federico Spada Spada have agreed to take on expanded and senior roles within Chart and not only help us with the integration but also help us to go to the next level on the market,” Evanko said.
VRV s.p.a. manufactures medium/high pressure and cryogenic equipment for the chemical, petrochemical and power industries. The Italian business operates in two divisions: energy and petrochemicals, and cryogenics (industrial, healthcare, cryobiology, liquefied natural gas (LNG), research & special projects and services & maintenance). It has six manufacturing facilities in Italy, France and India and commercial offices in the Czech Republic, France, Germany, the UK, Saudi Arabia, India (Mumbai), Malaysia, Brazil and North America
Chart’s Cryogenics products include: bulk storage, vaporizers, trailers, ISO containers, Microbulk, LN2 Dewars, LOX therapy equipment and Cryo freezers.