Fri, Jun 22, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Movers & Shakers: New Research Shows Big PE Play in the Chemical Industry

Thursday, December 20, 2012

Telly Zachariades, partner in The Valence Group, presents new data on why private equity loves chemicals.

Bailey McCann
Private Equity Strategies

Chemicals companies are becoming a hot item for private equity.‚ The US chemicals sector is represented by 80-100 sub-sectors and has approximately $1tln in revenues. Of that, private equity firms control $64bn.‚ Globally, chemicals account for $2.5tln in revenues. Private equity has had a varied role in this space in terms buying companies, and also securing discounts for strategic buyers which has supported consistent activity in chemicals M&A.

As a group, chemicals companies have a lot to offer private equity firms.‚ The industry is global, and much of the new activity grows with other sector spikes. The companies themselves also offer decent scale,‚relatively limited competition in their sub-sector, and high barriers to entry.‚

Secondary chemical deals have also seen new momentum this year - a trend that is likely to continue into 2013.‚ Big names like Riverside Co. have recently announced secondary deals like their sale of chemical maker DuBois Holding Co. to Aurora Capital Group.

"Private equity,‚as it relates to‚the chemical‚industry,‚has been a‚consistent‚participant in M&A year after year," explains Telly Zachariades, partner in The Valence Group, a boutique M&A advisory investment bank specializing in the chemical industry. Private equity investment in chemical industry M&A accounted for 8% of private equity transactions in 2012 alone.

Since 2000, private equity has accounted for 17% of the chemicals industry total M&A Value, with 2007 marking the peak year at 20%.‚ Historical data shows that relative to strategic buyers, chemicals transactions offer private equity a 7.2x multiple on average, making the space appealing for firms of all sizes.

"The financing markets‚for good‚chemicals‚properties‚are‚in‚good‚shape‚and‚relatively‚cheap," Zachariades says.‚ Despite this, in order to invest, GPs have to come with greater technical understanding of the industry than they might otherwise.‚ This makes for limited competition among firms but also stiffer competition overall.

The role of private equity in the industry has also changed, Zachariades notes. Early on, private equity may have been more focused on fixing, IPOing, or selling the business, but now much of that has changed.

"Private equity‚sometimes‚gets a bad rap,‚particularly in Europe, but‚that attitude is very old.‚There was a time‚long ago‚when private equity‚had a reputation as an asset stripper and cost cutter, but‚the attitude of private equity‚today‚is what can we do with this company to improve‚and grow‚it," he says.

Now private equity firms are more focused on growing their businesses rather than going to the IPO market. Some of that has to do with cost. According to Zachariades, companies need to be sizable, with an EBITDA north of $100m to justify an IPO.‚ This reality means that companies and GPs alike are redefining what it means to add value, and grow in the space.‚ Today, fixing broken businesses or consolidating niche areas are finding more favor.

Geographies can also provide opportunity - Asia is a rapidly growing region for chemicals M&A, and is on pace to continue attracting firms as those economies grow. "One third of the M&A activity now is coming out of Asia, in about five years I expect it will be half," Zachariades said.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Paper: The performance of stocks actively pitched by hedge funds[more]

    Using a novel dataset drawn from investment conferences from 2008 to 2013, I show that hedge funds take advantage of the publicity of these conferences to strategically release their book information to drive market demand. Specifically, hedge funds sell pitched stocks after the conferences to ta

  2. North America - US fundraising for special purpose acquisition vehicles hits record this year[more]

    From AFR.com: Special purpose acquisition vehicles (spacs) are hitting the US market at the fastest rate on record, attracting the likes of Goldman Sachs and hedge fund investor Daniel Loeb for the two largest such deals in 2018. Spacs have raised $US4.5bn so far in 2018, the largest amount fo

  3. Investing - Man Group and AQR try to take aim at private equity industry, Hedge funds poised to be winners in AT&T-Time Warner deal[more]

    Man Group and AQR try to take aim at private equity industry From FT.com: The popularity of private equity investments has prompted asset managers such as Man Group and AQR to devise strategies that aim to replicate PE returns but at a much lower cost to investors. Both companies a

  4. News Briefs: David Stemerman's hedge fund holdings shrank before his run for governor, nvestment manager TSW triggers succession plan, Alan Howard joins Peter Thiel investing in Cologne-based fintech startup[more]

    David Stemerman's hedge fund holdings shrank before his run for governor But the U.S. holdings of Stemerman's Greenwich hedge fund, Conatus Capital, shrank from $2.6 billion at the apex to just over $1 billion before he announced his move into politics. (Hartford Courant) Inv

  5. British Empire: Pershing's 23% discount 'unsustainable'[more]

    From Citywire: The wide discount on Pershing Square Holdings (PSH) is 'unsustainable' and puts star hedge fund manager Bill Ackman under pressure, says British Empire (BTEM). Pershing is the third largest holding in the £850 million British Empire trust, managed by Joe Bauernfreund, which sp