KMG Chemicals Inc. (NYSE: KMG) agreed to acquire Flowchem LLC, a leading manufacturer of pipeline performance products, from Arsenal Capital Partners (Arsenal) for $495 million in cash, the company said on April 25.

Waller, Texas-based Flowchem is a global provider of drag-reducing agents (DRAs), related support services and equipment to midstream crude oil and refined fuel pipeline operators. DRAs are specialty chemicals injected into midstream pipelines to reduce friction near the pipeline walls and within the turbulent fluid flowing through the pipeline network. By lessening fluid turbulence in pipelines, DRAs are highly effective in optimizing pipeline flow and lowering pipeline operating costs by increasing throughput capacity and reducing operating pressure.

Flowchem manufactures a broad family of DRAs, including products for light, medium or heavy crude oil, as well as those engineered for refined fuel products and custom-engineered solutions formulated to optimize particular pipelines. As the second-largest DRA provider globally, Flowchem serves more than 50 pipeline operators worldwide as well as midstream service providers and distributors.

“We couldn’t be more excited to announce the acquisition of Flowchem and we welcome its dedicated and talented team to KMG,” said Chris Fraser, KMG’s Chairman and CEO, in a statement. “This transaction is a unique and compelling opportunity for KMG, expanding and strengthening our capabilities in the growing market for pipeline performance products and services. The acquisition of Flowchem is consistent with our longstanding strategy of acquiring established, well-managed businesses with strong cash flow, high barriers to entry and value-added products that provide essential performance enhancements for our customers.”

“We are delighted to join KMG,” said Manuel Silva III, Flowchem’s president. “This is an outstanding combination that brings together two companies dedicated to providing value-added products and services to optimize pipeline performance throughout the world. The common values we share with KMG, including a consistent focus on product performance and quality and an uncompromising commitment to our customers, position us for continued growth and success in the global energy market.”

“Flowchem has demonstrated impressive organic growth as it continues to provide unique solutions to the global oil pipeline industry. The company is strongly positioned for continued growth and the KMG platform will enable Flowchem to further support its customers and the market’s needs,” said John Televantos, Arsenal Partner and Co-Head of Arsenal’s Specialty Industrials Group.

The transaction's purchase price includes working capital of about $17 million. The acquisition and associated transaction expenses will be funded with committed financing provided jointly by KeyBank National Association, HSBC Bank USA N.A. and HSBC Securities (USA) Inc.

Over the last twelve months, Flowchem’s adjusted EBITDA was about $43 million with a free cash flow conversion ratio of more than 95%, according to the company release.

KeyBanc Capital Markets acted as financial adviser to Arsenal and Flowchem. The acquisition is subject to customary closing conditions, including approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with closing anticipated to occur mid-June 2017.