KMG Chemicals Acquires High-Purity Process Chemicals Business

Houston, TX - KMG Chemicals, Inc. , a global provider of specialty chemicals in niche markets, recently announced that it completed the acquisition of the High-Purity Process Chemicals ("HPPC") business from Air Products and Chemicals, Inc.. With revenues of approximately $90M in the 12 months ended September 30, 2007, this acquisition doubles KMG's annualized revenues. The purchase price of $70.3M consisted of $47.1M for plant, property and equipment, as well as associated intangible assets, and $23.2M for accounts receivable, inventory and accrued liabilities. The acquired business will operate in the United States as the newly-formed KMG Electronics Chemicals, Inc., a wholly owned subsidiary of KMG Chemicals, and as KMG Italia S.r.l. in Europe.

The HPPC business is the largest U.S. supplier to semiconductor manufacturers of high-purity process chemicals used to clean, etch, and otherwise prepare the surface of semiconductor products. In the U.S., the HPPC business has an estimated 40% market share, and is the third largest supplier in Europe with an estimated 20% market share. Included in the acquisition are a state-of-the-art production facility and warehouse in Pueblo, CO. and a manufacturing facility and warehouse near Milan, Italy. The Company financed the transaction with cash on hand and approximately $56 million of incremental senior debt, a significant portion of which it expects to pay down by the end of this fiscal year ending July 31, 2008.

Neal Butler, President and CEO of KMG, commented, "HPPC represents our seventh successful acquisition in five years and with this acquisition, we have added an important new business segment with attractive growth opportunity. This acquisition is a perfect fit with our proven business model of acquiring mature, specialty chemicals that:

• Have significant positions in narrowly defined markets;
• Provide a clear path toward market leadership through organic growth and further acquisitions;
• Have significant barriers to entry;
• Can have an immediate positive impact on earnings and cash flow.

We expect that the purchase price to EBITDA multiple we paid for this business will prove to be very much in-line with our other acquisitions."

"Since signing the definitive agreement in October, we have laid the groundwork for a smooth integration of the HPPC business and have developed enormous respect for the 159 talented, experienced and dedicated HPPC employees who have now joined the KMG team."

Mr. Butler continued, "As previously stated, with this acquisition, KMG is on track to generate approximately $135M in revenues in fiscal 2008. The acquisition also is expected to be immediately accretive to earnings, contributing towards our stated goal of double digit EPS growth for fiscal 2008. Despite the jump in revenues, investors should not expect to see the same year-over-year earnings growth this year as occurred in fiscal 2007 due to the significant costs associated with transitioning and integrating this business. The acquisition will contribute in a much more significant way in fiscal 2009, particularly post-integration. With a full year of HPPC sales in fiscal 2009, we expect company revenues to exceed $180M."

Air Products will provide transitional services associated with the HPPC business to KMG related to supply chain, accounting and IT support. KMG anticipates terminating the transitional services agreement prior to July 31, 2008, the fiscal year-end. Additionally, Air Products will continue to distribute HPPC products to certain customers in Europe for several weeks to ease their transition, after which KMG will purchase the remaining inventory in those countries, estimated to be approximately $4.5M.

SOURCE: KMG Chemicals, Inc.