The current economic climate offers an ideal expansion opportunity for industrial investors and smaller companies in the chemicals sector, according to mergers and acquisitions advisers Clearwater Corporate Finance.
The firm says that as global chemicals groups and large private equity houses sell off non-core divisions to raise funds and reduce debt, smaller investors are seizing the chance to expand their portfolio and step up to the next level.
Constantine Biller, senior analyst with Clearwater, says: “Whilst the overall volume of mergers and acquisitions has dropped significantly in the past year, there are now ideal buying opportunities for small and medium-sized groups looking to broaden their geographic coverage.
“Often these groups are run much more conservatively than the big multi-nationals and have cash reserves and the ability to move swiftly when suitable businesses come on to the market. Many have kept their powder dry over the boom years and now see real opportunities to acquire fringe assets from the global players, and add crucial new product lines or penetrate new distribution channels.
“The opportunities are also ideal for so-called industrial investors. These specialist ‘buy-and-build’ groups are often run by chemicals industry executives with private equity experience. They are keen to take problematic or inefficient companies off the hands of the major groups as they have a better understanding of industry than traditional private equity players and have cash resources that allow them to move swiftly.
“In the current environment these industrial investors offer a quick and easy disposal route for larger groups, allowing them to avoid complex and often damaging auction processes.”
Biller says that the current crop of opportunities stem from two main sources. On the one hand, global players are selling off non-core or non-performing assets following the wave of mega-mergers within the industry in recent years. At the same time, many larger private-equity backed groups laden with excessive debt are seeking to raise cash by selling some of their subsidiaries.
Constantine Biller adds: “While mergers and acquisitions activity within the chemicals sector is likely to remain subdued for some time, the current market holds the potential for companies with cash reserves to make strategic acquisitions and achieve significant growth. By the time the economy recovers, the landscape at the lower end of the market could look very different than it does today.”
Seizing the opportunities – examples of recent deals
Clearwater advised Yule Catto & Co plc on the sale of two subsidiaries which were both acquired by overseas groups. PFW, a Dutch manufacturer of personal care chemicals, was acquired by an Indian purchaser, whilst Oxford Chemicals, a UK aroma chemicals manufacturer, was sold to an Israeli group.
The International Chemical Investors Group (ICIG), an industrial investor which specialises in buying non-core subsidiaries, acquired Albermarle Corp’s Port de Bouc facility, a French manufacturer of bromine-based flame retardants and now renamed Azur Chimie SA. The deal has allowed Albermarle to focus on its core fine chemical activities and enter into a toll manufacturing relationship with Azur Chimie. ICIG followed up this deal with the acquisition of Miteni SpA, an Italian manufacturer of fluorine intermediates, from Mitsubishi Chemical Corp.
While it focuses on completing the acquisition of Rohm & Haas, Dow has chosen to sell its European automotive damper and sealer business to Revocoat Group SA, a French investment vehicle owned by Katzberg Invest of Switzerland. The sale includes a manufacturing facility and an R&D laboratory in France, a manufacturing plant in Spain, an interest in Anabond-Essex Ltd in Chennai, India, as well as Dow Automotive’s Asian and Latin American damper and sealer business which has manufacturing facilities in Brazil and China.