H.B. Fuller Co. agreed to buy Royal Adhesives & Sealants in a $1.6 billion deal that unites two of the nation's leading makers of commercial and industrial adhesives.

The deal, announced Monday, will add a $650 million business to Vadnais Heights-based H.B. Fuller, driving its annual revenue to $2.9 billion.

The acquisition is the largest in Fuller's 130-year history and will instantly create the world's largest supplier of adhesives to the insulated glass and commercial roofing industries. It also becomes one of the biggest manufacturers of engineering adhesives across North America and Europe.

The company said it would issue new debt to pay for the deal.

"Royal's complementary offerings will expand our presence in North America, Europe and China, and add new technology and capabilities," said H.B. Fuller CEO Jim Owens during a conference call with analysts Tuesday.

He said the company identified $35 million in supply chain costs and other expenses that can be removed after the two companies combine. Executives also expect $15 million in new growth opportunities as product cross-selling begins.

Based in South Bend, Ind., Royal has been owned since 2015 by New York private equity firm American Securities LLC.

Royal produced about $138 million in adjusted earnings before taxes in its latest fiscal year. It makes epoxies and urethane-based products that are used by companies in the aerospace and defense, construction, specialty packaging and automotive industries. The company has 19 factories in five countries and about 1,500 employees. Owens said Fuller's management team visited all 19 Royal sites as part of the due-diligence process before finalizing an offer.

In July, H.B. Fuller made a much-smaller acquisition of a Brazilian adhesives manufacturer called Adecol Industria Quimica. In that deal, for which terms were not disclosed, Fuller gained about $40 million in new annual revenue.

That purchase, plus Fuller's acquisition news this week, follow Fuller's strong finish to 2016, but also profit decreases and missed expectations for the first half of 2017.

Owens told analysts in January and June that H.B. Fuller's profit growth would face pressure this year from rising raw material costs as prices for petroleum-based ingredients inch up.

In response to analysts' questions Tuesday, Owens said that Royal should ease future concerns about raw material costs. He noted that Royal buys substantial quantities of select chemicals and materials that Fuller does not. In those cases, Royal should help lower raw material costs, which will help earnings.

Royal will accelerate Fuller's entire 2020 strategic plan as well. The merger will bring "immediate improvement" to pretax earnings margins, revenue and cash flow, he said.

By 2020, the two companies combined are expected to increase sales by an average 4 percent per year and pretax profits by an average 12 percent.

The company's stock closed Tuesday at $51.90, up nearly 2.5 percent.

Adding Royal also is expected to "significantly shift" Fuller's product portfolio toward specialty and high value applications that will be used by engineering, construction and assembly end markets.

Royal will immediately give Fuller $100 million in new business from "highly specialized engineering customers," Owens told analysts. Fuller intends to expand that expertise into emerging countries, a marketing feat that Royal was unable to perform on its own.

"This acquisition creates immediate value for shareholders based on Royal's solid organic growth track record and high [margins] and cash flow conversions," Owens said. "We are excited."

Evan Ramstad • 612-673-4241

Dee DePass • 612-673-7725