Equity firms alter tactics with chems - chief exec

20 April 2006 00:23  [Source: ICIS news]

NEW YORK (ICIS news)--Private equity firms are taking a new approach to investing in the chemical companies by bringing on people with industry expertise and having deeper involvement in strategic decisions, a chemical executive said on Wednesday.

Equity firms no longer simply rely on financial engineering, said Michael Ducey, president and chief executive of Compass Minerals International.

“The old approach to private equity investing involved buying low, leveraging up, fixing the business and exiting,” said Ducey at a meeting of the Societe de Chimie Industrielle--American Section in New York. “Today, private equity is working with board members to determine the future direction of the company and create better sustainable value upon exit.”

Compass Minerals stands as one of the major success stories in private equity investing - not just for the investors, but for the public shareholders following the exit of private equity, he said.

Apollo Management acquired an 81% stake in IMC Global’s salt assets for $120m (Euro97m) in cash and created Compass Minerals in 2001. By December 2003, Compass went public in an initial public offering (IPO) and raised $217 million as Apollo partially exited.

In 2004, after two secondary offerings, Apollo completed its exit. Compass Minerals now has a market capitalization of over $840m. Its stock has doubled from $13 at the time of the IPO to over $26.

“Apollo took the time to learn the business, and put industry experts on the board for governance and strategy,” Ducey said. “They also had a clear exit strategy while creating a sustainable business model of generating cash and paying dividends.”

The chemical industry has much to learn from private equity, Ducey said. “Chemical executives should engage the private equity community - a private investor will be your owner, partner or competitor,” he said.

However, a successful private equity partner must understand the industry and share the same strategic vision as management, Ducey said.

Private equity is experiencing huge fund inflows as investors seek higher returns, he said. Cash coming into private equity funds has jumped from $17bn in 2002 to $174bn in 2005. “There is a huge tidal wave coming across our industry,” he said.

By: Joseph Chang
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