US Rockwood to hold off on acquisitions - CEO

15 April 2009 21:33  [Source: ICIS news]

JERSEY CITY, New Jersey (ICIS news)--US-based specialty chemical firm Rockwood Holdings will hold off on making acquisitions in the near term as it focuses on cash generation, chairman and CEO Seifi Ghasemi said on Wednesday.

“Despite our history of making 22 successful acquisitions in the past eight years, we are not looking at making any today. We had $430m [€323m] in cash at the end of 2008, and we are hoarding it,” said Ghasemi at a joint meeting of the Societe de Chimie Industrielle and the American Chemistry Council (ACC).

“Although valuations are down and there are attractive acquisition opportunities, we have to be conservative and sit on cash until we see what is going to happen with the economy,” he added.

Since its founding in 2000, Rockwood has made 22 acquisitions and three divestitures. Sales in 2008 were $3.38bn across three segments – specialty chemicals (including lithium products), pigments and additives and advanced materials.

Low visibility on customer demand and the potential for a worsening global economy are causing Rockwood to be conservative, he said.

“We believe there is more bad news to come [regarding the economy] because the employment picture is likely to get worse,” Ghasemi said.

“Also, our customers are not telling us things are improving. Once we get better visibility on that front, then we can start considering deals,” he added.

Rockwood has reduced its leverage as measured by debt/EBITDA (earnings before interest, tax, depreciation and amortisation) from 7 times in 2004 to around 3.5 times by the end of 2008, but is still considered leveraged.

On 17 March, credit ratings agency Standard & Poor’s cut Rockwood’s rating by one notch from BB- to B+, saying the company could be at risk of breaching its financial covenants.

Ghasemi warned about the temptation to make acquisitions, stressing that due diligence is paramount to success.

“Beware of investment bankers bearing spreadsheets. We learned that growth estimates and synergies calculated by investment bankers are exaggerated by a significant margin,” Ghasemi said.

“They are intelligent people but many times they really don’t know the businesses they are selling. You need to be very careful and do the analysis yourself – you can justify anything by adjusting numbers on a spreadsheet,” he added.

Exhaustive due diligence on the important aspects of an acquisition is one of the key lessons learned from creating a global specialty chemical company, Ghasemi said.

“Real due diligence is not something you can delegate,” he said.

“While we did delegate the legal and financial items to specialised firms, we spent our time on the real due diligence – understanding the customers, the product lines and the people,” he added.

($1 = €0.75)

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