Dynaction S.A.

39 rue des Peupliers
Boulogne Billancourt
F-92773 Cedex
France
Telephone: +33 1 46 20 02 32
Fax: +33 1 46 08 14 09
Web site: http://www.dynaction.fr

Public Company
Incorporated: 1982 as Cryo Diffusion
Employees: 1,895
Sales: EUR 190.6 million ($220 million) (2003)
Stock Exchanges: Euronext Paris
Ticker Symbol: DYNP.PA
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

Once a model "mini-conglomerate," Dynaction S.A. is shedding its holding company status and focusing itself as a pure-play Fine and Specialty Chemicals group. As such, Dynaction is in the process of divesting most of its holdings in order to regroup around a core represented by subsidiary PCAS. The company expects to complete a full merger with PCAS by the end of 2004. PCAS is active in five specialty chemicals areas: pharmaceutical synthesis and pharmaceutical formulation (41.6 percent and 15.1 percent, respectively, of sales); aroma chemical and cosmetics (11.8 percent); fine mineral chemicals (7.0 percent); specialty industrial chemicals (9.7 percent); and photochemicals and new technologies (10.7 percent). The company produces chemicals and chemical components for major pharmaceuticals companies. Among these is Adventis, with which the company is engaged in a partnership for the production of active ingredients, as well as the synthesis of Adventis-developed molecules. PCAS operates ten production plants, including a plant in Finland and one in Quebec, Canada. Three of the company's plants also meet the U.S. Food and Drug Administration requirements, giving the company access to that market. PCAS generated EUR 190 million, or approximately three-fourths of Dynaction's total revenues. (The remainder was generated by industrial group CMD Engrenages et Réducteurs, slated to be sold by the end of 2004.) France accounts for 38.6 percent of the company's sales, while the rest of Europe adds 42 percent of the group's sales, followed by North America, at 11.5 percent of sales. PCAS itself serves as a holding company for a number of subsidiaries, including Expansia, PCAS, PCAS Finland, PCF, Saint Jean Photochimie, in Canada, and Société Béarnaise de Synthèse. Dynaction is quoted on the Euronext Paris Stock Exchange and is led by cofounder and Chairman Christian Moretti.

Founding a Mini-Conglomerate in the 1980s

Dynaction specialized in acquiring and developing new and growing businesses long before "start-up" became an investors circle buzzword. The company was founded by Christian Moretti and Henri Blanchet. Both men had backgrounds in the banking and finance industries. Moretti, a native of Nice and a graduate of Columbia Business School, also had taught finance in Paris in the 1970s. In 1982, Moretti and Blanchet joined together to form an investment partnership and that year acquired Cryo Diffusion, paying a symbolic amount for the money-losing cryogenics company.

Moretti and Blanchet launched Cryo Diffusion on a restructuring that quickly brought it back in the black. In the meantime the partners had been scouting for new acquisition candidates for their young holding company. Their next purchases came in 1983, with the acquisition of two small industrial manufacturers, CEE, one of the world's top producers of electronic security systems, and CCS, a maker of remote control devices. CEE was then listed on the Paris Stock Exchange's Secondary Market in 1984 in order to fund more acquisitions. By the end of that year, Moretti and Blanchet had acquired Matlabo. Then in 1985, the partners added Risoud S.A.

In that year, Moretti and Blanchet restructured their cryogenics operations as a new subsidiary and adopted the name Dynaction for the holding company. Dynaction's strategy was by then mostly in place. Moretti and Blanchet targeted purchases of small-scale industrial companies, choosing such solid if "unglamorous" sectors as mechanical engineering, packaging, refrigeration, and the like. These companies, however, were chosen among the leaders in their markets, and especially those with strong operations on the export market. At the same time, Dynaction never embarked on hostile takeovers, bucking the prevailing trend in a decade dominated by corporate raiders. Instead, the company preferred the less expensive friendly takeover.

Once brought into Dynaction, the new subsidiaries retained a high degree of independence. Managers of the group's companies were given a free rein in their decision-making, and only required to seek Dynaction's approval for matters such as acquisitions and financing. Moretti and Blanchet also sought to transform a company's management into entrepreneurs, rather than employees. In order to encourage this, managers of Dynaction subsidiaries were given stakes as high as 25 percent. This enabled Moretti and Blanchet to attract a pool of highly competent managers. In this way, also, Dynaction itself remained quite small, with just two other employees in addition to Moretti and Blanchet.

Another feature of Dynaction's investment process was its willingness to open the capital of its subsidiaries to outside investors. Selling stakes in the companies, whether through stock exchange listings as with CEE or through placements with institutional investors, permitted Dynaction to raise capital necessary to continue its acquisition strategy.

Dynaction itself went public, listing on the Paris Stock Exchange's Secondary Market in 1986. That year, the company acquired Jeulin and Jeulin, which was then merged into the Matlabo subsidiary. Dynaction also created a new subsidiary, Mecadyne, by spinning off the industrial operations of Risoud and by acquiring two other small businesses. Mecadyne itself grew into a sort of "mini-Dynaction," overseeing its own range of subsidiaries. Other Dynaction vehicles followed this pattern, giving rise to subsidiaries Dynelec, Dynalog, Dynaspring, and Cellier, the world leader in coated paper.

This last group represented an example of what could go wrong under Dynaction's management style. Acquired through Dynaction's acquisition of Frankel in 1987, Cellier was hit hard by the economic recession of the early 1990s. By 1992, the company was forced into bankruptcy proceedings. Nonetheless, on the whole Dynaction proved highly successful in developing its diversified holdings. These included Dynelec, which had been acquired as Metanic, and Fontaine Electronique in 1987; and Eurodyne, Grantil, Regma, a maker of office equipment acquired from Rhone Poulenc, and RMA in 1988. The latter two were combined with Fontaine Electronique to form Dynaspring in 1989.

Scaling Back in the 1990s

By the beginning of the 1990s, Dynaction represented a diversified, if small-scale, conglomerate of more than 70 companies, including 32 subsidiaries directly controlled by Dynaction. Total sales among the conglomerate's holdings neared FRF 5.5 billion (approximately $900 million) by 1991. In that year, Dynaction transferred its stock listing to the Paris main board. The company also acquired a new subsidiary that year, CMD Engrenages et Réducteurs, bought from PSA, the makers of Peugeot and Citroën automobiles.

The year 1992 marked the first change in strategy for the group. The failure of Cellier, and difficulties among the group's other operations during the drawn-out economic recession in Europe, led Dynaction to take tighter control of its operations. The company began a process of streamlining and refocusing its holdings. By 1995, Dynaction had reduced its holdings to just 28 companies, most of which were grouped under ten primary subsidiaries. The disposal program played a major part in helping to reduce the company's exposure to the hard-hit industrial manufacturing sector.

At the same time, Dynaction sought to diversify into less cyclical business sectors. In the early 1990s, Dynaction targeted two sectors for this effort. With the acquisition of Mediascience, Dynaction entered the educational materials, systems, and publishing market. Through Mediascience, Dynaction moved into the distribution market, offering some 4,500 products for the secondary and university markets. Still more significant for the company was its 1992 acquisition of PCAS, a fine and specialty chemicals operation of The Netherlands' Akzo. PCAS, which stood for Produits Chimiques Auxiliaires de Synthèse, gave Dynaction a variety of operations, including the production of aroma molecules and products, and active ingredients and other specialty chemicals for the pharmaceuticals market.

As it pared away at its industrial holdings, Dynaction began building up its two newest areas of operations. In 1993, for example, the company acquired Canada's Saint-Jean Photochimie, extending PCAS into the production of photosensitive resins. The company also formed a new Spanish division for its Mediascience operation, called Euroscience, that year.

Company Perspectives:

Dynaction is an industrial company focused on a single growth sector: Fine and Speciality Chemicals. This is the sole business of PCAS, Dynaction's subsidiary, where its majority stake is close to 70%.

Dynaction's single-sector strategy is the result of a refocusing dynamic under way since 1995. Its last phase, the sale of CMD Engrenages et Réducteurs, is scheduled for 2004.

Dynaction's objective is to allocate all its resources to Fine and Speciality Chemicals, a growing, value-creating sector that is generally sheltered from international business cycles. At the end of 2003, this sector represented 74% of Dynaction's turnover. PCAS has earned a leadership position in this market thanks to constant and sustained growth, averaging 17% per annum over the last eight years. Dynaction is an industrial company with optimised and streamlined structures, a well-targeted strategy and very low operating costs. Dynaction has embarked on a move to combine with its subsidiary PCAS, which will lead to a merger during the second half of 2004.

Both Mediascience and PCAS were then listed on the Paris Stock Exchange. Mediascience's listing came in 1994, reducing Dynaction's stake in the company to just 54 percent. PCAS's turn came the following year, as a result of which the stake dropped to slightly less than 71 percent.

Focused Specialty Chemicals Group for the New Century

The year 1995 marked the true turning point for Dynaction. In large part, the company's change in focus appeared to come as a result of the sudden death of Henri Blanchet that year. Now led by Moretti alone, Dynaction continued its policy of streamlining its operations through the late 1990s. By 1995, the company sales had been scaled back to just FRF 3.1 billion (approximately $530 million), and by 2000, Dynaction's total revenues amounted to just EUR 327 million ($300 million). As part of its restructuring, Dynaction regrouped its continuing operations under three primary divisions: Industrial Manufacturing; Components and Services; and Technical Distribution.

By the early 2000s, however, Dynaction's focus had narrowed still further. The investors' climate had changed dramatically from the boom years of the late 1990s, brought on by the collapse of the high-technology sector, and by increasing investor preference for "pure-play" stocks. Dynaction continued to shed operations and by the end of 2003, the company's holdings consisted of just two main groups: PCAS and CMD Engrenages et Réducteurs.

With the latter scheduled for disposal by the end of 2004, Dynaction had transformed itself from a diversified conglomerate to a specialist company in the fine and specialty chemicals industry. PCAS had grown strongly since its acquisition in the early 1990s. In 1996, PCAS formed a partnership with Elf-Atochem, forming Bèarnaise de Synthèse to produce molecules for the Elf subsidiary. This was followed by the acquisition of Seloc in 1998, and Vernolab, a leading provider of oils analysis and services, and Pharmacie Centrale in 1999.

In 2000, PCAS acquired the active principal ingredients operation of Sanofi-Synthelabo. The following year, PCAS acquired three more companies, Expansia, E-pharma, and Finland-based Leiras Fine Chemicals Oy. The company also acquired the Bessay industrial site that year, located near Vichy in France. Through its Créapharm subsidiary, PCAS made several more acquisitions into the 2000s, including Euclidis and Sci Maude in 2002. The following year, the decision was made to refocus PCAS on a core of Fine and Specialty Chemicals. As part of that decision, the company sold off Vernolab in 2004.

By then, Dynaction was ready to complete the final process of its transformation, and in 2003 the company announced its intention to merge with PCAS, creating a single entity. Poor market conditions forced the company to postpone the merger. Nonetheless, in 2004, Moretti reaffirmed the company's commitment to the merger, intending to complete the move by the end of the year. The form of the merger—whether to merge Dynaction into PCAS, or vice versa—had yet to be decided. Dynaction looked forward, however, to its new beginning as a specialty chemicals group in the new century.

Principal Subsidiaries

CMD Engrenages et Réducteurs; Créapharm; Expansia; PCAS; PCAS Finland; PCF; Saint Jean Photochimie (Canada); Société Béarnaise de Synthèse.

Principal Divisions

Industrial Manufacturing; Components and Services; Technical Distribution.

Principal Competitors

Bayer AG; Ciba Specialty Chemicals Corporation; Clariant Ltd.; Imperial Chemical Industries PLC; SKW Trostberg AG; Rhodia S.A.

Key Dates:

1982:

Christian Moretti and Henri Blanchet acquire Cryo Diffusion and create a holding company structure to acquire other businesses.

1985:

The holding company's name is changed to Dynaction.

1986:

Dynaction lists on the Paris Stock Exchange's Secondary Market.

1991:

The company transfers its listing to the Paris main board.

1992:

The company acquires PCAS from Akzo and begins streamlining its holdings.

1995:

Henri Blanchet dies; Dynaction continues restructuring around three core divisions; PCAS lists on the Paris Stock Exchange's Secondary Market.

1996:

PCAS forms the Béarnaise de Synthèse partnership with Elf-Atochem.

1998:

PCAS acquires Seloc.

1999:

PCAS acquires Vernolab and Pharmacie Centrale.

2000:

PCAS acquires active principals business from Sanofi-Synthelabo.

2001:

PCAS acquires Expansia, Leira Fine Chemicals (Finland), and E-Pharma.

2002:

PCAS acquires, through the Créapharm subsidiary, Euclidis and Sci Maude.

2003:

Dynaction announces a plan to sell off its remaining noncore holdings and merge with PCAS.

2004:

The merger with PCAS is slated for completion by the end of the year.

Further Reading

"Conglomerateurs Par Excellence," Economist, June 16, 1990, p. 82.

"Merger Planned Between PCAS and Dynaction," Chemical Business NewsBase, January 27, 2003.

—M.L. Cohen