Focus article by Tom Brown.
LONDON (ICIS)--The market for acquisitions and stock exchange listings for higher-quality chemicals companies is extremely competitive at present, due to a mix of high market valuations and interest from trade buyers and private equity firms, a partner at investment bank Valence Group said on Tuesday.
Strong trading multiples for listed petrochemicals companies in the US and Europe is driving interest in the sector, and more companies are looking to exploit this interest to go public, according to Valence partner Anton Ticktin.
“Petrochemical companies are trading at very high levels on the European and US stock markets, way above what they have been over the last 15 years or so, and there’s plenty of liquidity out there. And I think before that window closes for whatever reason... people are very keen to try and make use of that, and try to IPO the companies,” Ticktin said.
“Everyone’s going down the same track. It’s not just the chemical industry obviously, but the chemical industry is, for various reasons, trading at exceptional levels,” he added.
US private equity firm Bain Capital has revived plans to take plastics, rubber and latex producer Trinseo – formerly known as Styron – public, after shelving plans to list in 2011.
The company said earlier this week that it is to sell 10m shares in the IPO at an indicative price range of $17-19 apiece. Market sources estimate that the pricing of the Trinseo’s shares equates to around a seven times multiple on earnings before interest, taxes, depreciation and amortisation (EBITDA).
The estimated $170m-190m payday, which is to be used to service debt, is substantially below the $400m fundraising envisaged in the 2011 IPO and slightly below the top range of original forecasts of up to $200m, but still underlines the strengthened position for chemicals companies since the start of this decade, according to Ticktin.
“There was a slow-down in the market... and for many chemicals companies towards the middle of 2011, markets fell, there was a reassessment of position, so it wasn’t particularly strong,” he said.
“You could get away with [IPOs] but it was just tougher. At the moment, liquidity is higher because trading multiples are higher,” he added.
While interest in the best assets is strong, the market is not liquid enough to accommodate every company that may be seeking to go public, he added.
“There’s probably a bit of IPO fatigue in the market, so not every single company can IPO. There’s only a certain amount of money that is chasing these [assets],” Ticktin said.
Private equity appetite remains strong for new deals in the sector, according to Ticktin, due to favourable bank financing conditions and strong reserves of funds to invest.
“Private equity firms have a lot of cash behind them and they have to deploy it. Interest rates are very low, they can get impressive leverage at the moment. Banks are very eager to lend, especially on higher-quality assets,” he said.
The attention is focused more strongly on business focused on specialty chemicals and intermediates, with less interest in commodities producers, but private equity is facing competition from industry buyers looking to expand or consolidate their positions in higher-margin sectors, causing valuations to heat up.
“Even though [private equity firms are] extremely competitive now with their leverage levels, there are a lot of trade buyers who are very keen to buy and have plenty of cash on their books. So it’s a very competitive market for the higher quality assets out there,” Ticktin said.