Get ready to see more private equity firms selling chemical assets to other private equity firms to other private equity firms. These so-called sponsor-to-sponsor deals will become more prevalent based on several factors.
First, many financial buyers are seeking to exit investments made during the private equity boom in the 2000s through 2008. The typical holding period is 3-5 years, and many are getting long in the tooth.
Second, private equity firms also have plenty of cash to spend in their more recently raised funds. This money needs to be put to work. Third, strategic buyers are being selective, typically buying only those assets that fit within their current portfolios – often financial buyers are the only ones interested.
Lastly, the overall high-yield financing market remains robust.
Last week saw US-based Royal Adhesives & Sealants sold by Quad-C Management to Arsenal Capital Partners. Other sponsor-to-sponsor deals this year involve US-based companies Arizona Chemical and Univar.
More of these deals will surely come. But an interesting question is: How will one sponsor create value from an asset already owned and cost-optimized for years by another? The answer is likely a combination of leverage and roll-up opportunities.
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