Cinven Ltd. is looking for potential investments in chemicals after a decade in which the private equity firm didn’t make an acquisition in the industry, partner Guy Davison said in an interview.
Cinven is interested in chemical distributors and other companies that are less exposed to the volatile swings in earnings that commodity-product makers suffer from, Davison said in a Feb. 29 interview.
“There’s quite a cyclical element to chemical companies and sometimes they are suited to the leverage model and sometimes not,” the Cinven partner said in the telephone interview. “With distribution, you might just be a little more relaxed about some of the volatility.”
Investment firms have been among the most prominent recent buyers of chemical assets, led by deals such as reinsurer Berkshire Hathaway Inc. (BRK/A)’s purchase of Lubrizol Corp. for $9 billion last year. Access to funding will determine how big a role financial sponsors play in 2012’s mergers and acquisitions, Tracey Stover, global chemical leader at PricewaterhouseCoopers LLP, said in an interview yesterday.
Chemical companies have recently had the upper hand in asset auctions after emerging from a global slump with stronger balance sheets and optimal efficiency following cost reductions, Stover said. The balance of power between buyout firms and strategic bidders is less clear this year as there is increased pressure on CEOs to undertake deals with timely returns, and the lending strategy of banks is less visible, she said.
CEO Optimism Dwindles
“It’s an exercise of caution,” Stover said. “These executives are concerned about the economy. We’re seeing people going from the optimistic category to the concerned category, but they haven’t gone to pessimistic.”
Cinven agreed this week with Goldman Sachs Group Inc. to sell tool and building-product wholesale company Ahlsell AB to CVC Capital Partners Ltd. for a total of 1.8 billion euros ($2.4 billion). The London-based firm’s industrial interests span aerospace engine-component manufacturer Avio SpA and packager Smurfit Kappa Group Plc. (SKG)
Private equity firms have hired former industry executives to spearhead investments in chemicals. Advent International hired Ron Ayles, the former mergers and acquisitions head at Degussa AG. That’s a route that Cinven has yet to follow, Davison said.
“For right or for wrong, we haven’t got a senior chemicals person on the team pushing chemicals pretty hard, but we are looking at chemical businesses,” Davison said. “We haven’t quite found the right thing we’re comfortable with.”
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