FocusPrivate equity faces tough exit from chems

21 May 2008 22:47  [Source: ICIS news]

By Joseph Chang

 

NEW YORK (ICIS news)--Private equity firms will face a difficult time exiting chemical businesses in coming months, the president of investment bank Young & Partners said on Wednesday.

 

Private equity firms have been active buyers in the chemicals sector since 1999, and most have held on in the vast majority of deals, according to Peter Young, president of New York City-based investment bank Young & Partners.

 

Ordinarily, private equity investors would be expected to hold an asset for three to five years and then unload those properties for a profit.  However, under the now tighter financial market brought on by the subprime mortgage crisis, selling such large assets in a credit-constrained environment presents a challenge.

 

“The question now is: How do you get out of the building?” said Young, speaking at a joint meeting of the US branch of the Societe de Chimie Industrielle and the Synthetic Organic Chemical Manufacturers Association (SOCMA).

 

“The IPO window, which has been shut in the US, is now shutting almost everywhere,” Young said.

 

“There will be some real challenges for those private equity firms that own chemical assets,” added Young. “The only exit option available is a sale to industrial buyers of other private equity.”

 

On the buy side, private equity firms continue to execute deals in the chemical space, but at a slower pace since the credit crisis that began in July 2007, Young said.

 

In the first quarter of 2008, private equity buyers represented 12% of global deals compared with 28% in the first half of 2007 and 17% in the second half of 2007, according to Young & Partners.

 

“Since we are likely to face a prolonged debt crisis, financial buyers will have a more subdued but still meaningful presence,” said Young.

 

He estimated private equity could still represent 8-12% of global chemical deals this year.

 

“It is still extremely hard to do deals with a transaction value over $1bn (€640m),” said Stephen Hoffmeister, principal at global private equity firm Advent International.

 

In remarks to the meeting, Hoffmeister said that “There is still lots of high yield debt out there that banks still have on their balance sheets, so credit for large deals is hard to come by”.

 

($1 = €0.64)

 

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By: Joseph Chang
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