Edgewater to invest in specialty chemicals

Chicago-based mid-market firm The Edgewater Funds has formed an alliance with former chemical industry executives to acquire chemical portfolio companies.

The Edgewater Funds has teamed up with former Sovereign Specialty Chemicals executives to assist in its new-found focus on chemicals companies with an emphasis on sealants, adhesives and coatings.

Robert Covalt, Sovereign’s founder, as well as former chairman and chief executive prior to its sale in 2004, John Mellet, the company’s former CFO, and Paul Gavlinksi, former Sovereign vice president, will provide the industry expertise to invest in companies with sales of $25 million (€18 million) to $300 million.

“We’re going to be helping them identify targets that we can then jointly acquire,” explained Scott Meadow, a partner with Edgewater. Companies that produce chemical adhesives and sealants is “area we’re interested in, but we’re interested in the team more than anything else”, he said.

While at Sovereign, Covalt and the other executives grew the firm through nine acquisitions and increased its revenues from $0 to $400 million, Meadow said.

The specialty chemicals industry is “a highly technical area [with] its own idiosyncrasies”, Meadow said. “The opportunity to take it on with a management team who’d been there before…..was the reason that we decided to go forward.”

The executives and Edgewater plan to make total equity investments of $25 million to $100 million in specialty chemicals companies.

“With leverage, that could be $400 million to $600 million in buying power,” Meadow said. Edgewater will provide “the majority” of capital for investments, he added.

Though a new area of focus for 15-year-old Edgewater, private equity firms have long found chemical companies attractive targets, particularly for buy-and-build strategies.

Recent deals include Apollo Mangement’s $10.6 billion agreement to buy Huntsman and CVC Capital Partners €800 million acquisition of Taminco.