Sponsors bet on chemicals

100 European chemicals companies are now under private equity ownership, but realisations are a challenge, according to a new report.

Financial buyers have steadily increased their involvement in the European chemical industry in recent years, with private equity now accounting for up to 30 per cent of all deals done in the sector, according to a report from KPMG’s Private Equity Group.


According to the report, private equity has historically accounted for five percent of total transaction values in the sector. The figure rose to 20 percent between 2000 and 2002 and is now estimated to have climbed as high as 30 percent in 2003 with as many as 100 European chemicals companies under private equity ownership.


The report also predicts that private equity buyers will account for 40 percent of the estimated €1 billion of European chemical assets it reckons will be for sale this year.


Among the large private equity groups to become involved in the ongoing restructuring of the European chemicals sector recently is The Blackstone Group, which backed a €3.1 billion ($3.9 billion) offer for Celanese, the German industrial chemicals company, in December.


Dinamit Nobel is also in play. Kohlberg Kravis Roberts, Blackstone, CVC Capital Partners, Permira, BC Partners, Cinven and Advent International have all submitted bids for the Dinamit Nobel chemicals business put up for sale by MG Technologies.


“The dramatic rise we are now seeing in the levels of private equity investment in the sector is as a direct result of the spate of merger and acquisition activity which characterised the 1990s,” said James Drury of KPMG’s Private Equity Group. “Those years have left a legacy of restructuring and debt reduction strategies – many of which are being facilitated by private equity investment.”


However, the report also found that private equity firms have been slow to monetise their investments in chemicals. “The limited number of exits from the sector to date means that insufficient evidence is available to conclude whether private equity houses have successfully generated value through their investments.”


Many private equity-backed chemicals acquisitions are part of a buy-and-build strategy or require restructuring following a carve-out from a corporate, aspects that cause holding periods to lengthen. Portfolio management issues are also becoming an issue as trade buyers are generally unwilling to undertake restructuring post acquisition.