Advent International Corp., among the largest private equity investors in chemicals, said buyout firms will increasingly join forces with strategic competitors to bid for chemical companies that can be divided up.
Companies and buyout firms will be more proactive in seeking out joint ventures and partnerships as the chemical industry becomes increasingly consolidated, said Ron Ayles, who oversees Advent’s chemical portfolio, in an interview.
“Sometimes the strategic can’t buy everything because of antitrust, for example, or they want to buy something that doesn’t fit 100 percent,” said Ayles, the former acquisitions director at German chemical maker Degussa AG. “We speak the same language as the corporates. We try to generate deal ideas jointly, so this is an alternative way to auctions.”
Advent, whose interests span plastics and lithium-battery materials, expanded its chemical team this year with the addition of industry insider Guenter von Au. The former CEO of catalyst maker Sued Chemie, bought by Clariant AG, joined as an operating partner as Advent pursues expansion in Asian markets. Having von Au on board will help with making direct contact with targets, Ayles said.
Private equity firms and advisers on deals have hired former industry experts to bolster their chemical teams, with Valence Group recruiting David Lilley, the former CEO of Cytec Industries. Von Au will also help Advent with running existing investments, Ayles said.
Advent is in its 12th year of ownership of Germany’s Vinnolit and faces a decision on its investment strategy for the maker of polyvinyl chloride. Arkema SA of France and Tessenderlo Chemie NV of Belgium both exited their PVC operations within the past year, highlighting a struggle to compete with low-cost producers and high input costs.
Vinnolit has been refocused on higher-margin specialty products to improve profitability and recent consolidation will benefit the industry, Ayles said. The rise of the shale gas industry in the U.S. has been a boost to the ethylene-based chemical production chain and will further spur PVC consolidation as manufacturers feel stronger, he said.
“There are consolidators out there, so it’s simply a question of finding the right fit,” the executive said.
There are opportunities to make chemical acquisitions in Europe because the larger companies are more focused on driving Asian expansion, often via greenfield factories, according to the Advent manager. Major players have less capital allocated for investments in mature economies, and some U.S. investors are also hesitant about chemical investments in Europe, Ayles said.
Advent, based in Boston, typically has two or three chemical targets in the due diligence phase across the firm and Ayles said his team tends to analyze all opportunities in its size range that come to market.