Financial sponsors

If you did not already foimd your implementation team prior to designing the implementation proposal, you should certainly do it now. In the previous chapter, we agreed to use the term implementation team to refer to those people who are actively involved in implementing the scheme. In contrast to that, the steering committee is the implementation team plus the scheme s (financial) sponsors, who, although involved with the... 

Let me not forget the mention of those who have provided fuel for my research vehicle to propel to the fore - the financial sponsors. Predominant among these are Dr Sibisi, the President and CEO of the Council for Scientific and Industrial Research (CSIR), Mr. Cyril Gamede, the Operations Director of African Explosives Limited (AEL) and Mr. Leon Kruger, the Operations Director of Johnson and Johnson (Pty) Ltd. My heartfelt thanks also go to the Water Research Commission (WRC) of South Africa. 

The chemical industry has the potential for substantial further consolidation over the next few years. The precise timing will be influenced by the equity market cycles and general M A activity. However, as in the past and in other industry sectors, consolidation will provide investment opportunities for financial sponsors. 

There were more than 30 sizable private equity chemicals transactions in the USA and Europe between 1999 and 2004, with a total valuation of about EUR 40 billion. Twenty of these deals were in Europe, and the average deal size was greater here as well. Two of the ten largest European chemical LBOs were public-to-private cases, the remaining eight were divestments of conglomerates to financial sponsors (Fig. 31.2). 

The exit by disposal of Messer Griesheim to strategic buyers and the partial Celanese IPO in the USA are successes with above-average returns. Recapitalizations due to strong operational cash flows and the availability of debt have also been successful for example, the recapitalization of Cognis has returned more than the money originally invested, although the financial sponsors still own it entirely. 

From the perspective of financial investors, there are three factors that influence the degree of success the business s strategy and operations, conditions on the financial markets, and the aligned interest of management teams and financial sponsors. 

Financial sponsors place heavy emphasis on strategy and operations, and getting these two right can lead to performance improvements and cash flow acceleration. These are usually rewarded by incentive systems for management teams and are supported by powerful implementation principles. 

Cost improvement and productivity gains are a continuous process in any enterprise. Financial sponsors focus heavily on cost, particularly in the early phase of an investment, and especially when an LBO has been a divestment by larger conglomerates. In chemical companies, cost improvement projects often focus on overhead cost and plant productivity. Such approaches are usually implemented in tandem with projects that strive to make the organization more market-driven and functional for the business. They may also require investment in plant automation to improve plant productivity. 

LBO financings require a healthy cash flow for interest payments and repayments of debt tranches. The net debt position also determines the equity value that can be realized for financial sponsors on exit. The two major levers for improved cash flow management are working capital management and a disciplined capital expenditure program. 

Limiting the financial metrics is a key ingredient in energizing a company for change. Corporations tend to focus on net earnings (per share), EBIT, sales growth, and market share. Financial sponsors, on the other hand, use a value-... 

Financial markets value companies. The cycle of equity markets measured as a multiple of the current EBITDA performance of a company is important, as it influences the value and the timing of exits for financial sponsors. The availability of debt markets is equally important because LBOs require sophisticated debt financing arrangements. Conditions in both equity and debt markets have an impact on private equity investments. 

Beyond the capital market analysis, a financial sponsor needs to judge the sustainable value of a business over the medium to long term. This needs to be adaptable, as equity markets may not be available for IPOs, equity increases, or larger acquisitions. From the financial sponsor s viewpoint this means that the private equity fund has limited exit opportunities during such periods. 

Aligned Interest of Management Teams and Financial Sponsors... 

However thorough the financial analysis and however rigorous the operational and organizational improvements are, every success story is underpinned by dedicated and competent people. Highly skilled and motivated management teams lead companies that have been acquired by financial sponsors. Such management teams seek entrepreneurial freedom, but they also seek entrepreneurial success. 

The increase in value of an LBO-led company at exit is shared between the financial sponsors and management teams. This is why LBOs are often synonymous with management buyouts. This participation in the success is important as it aligns financial sponsors and management teams in their own economic... 

Second, when the financial sponsor exits the business, the joint financial success is equally measurable for the private equity investors and the management team sharing the equity participation. This is important, as it demonstrates fairness to both those who have worked hard on the financial sponsors side and those who have worked hard as responsible managers of LBOs. 

The financial sponsors are warmly thanked. DERA at Fort Halstead funded the work on nitration of deactivated aromatics, and particular thanks are due to our industrial colleagues, Dr. Ross Millar and Dr. Rob Claridge, who made substantial contributions to the development of the ideas. The Government of Qatar is funding the studentship of Saeed Almeer and the EPSRC funded the studentship of Simon Roberts. 

Acknowledgements Parts of this research have been financially sponsored by the Deutsche Forschungsgemeinschaft (DFG) in the frame of the Priority Programme 1259 Inteiiigente Hydro-geie . The author wants to thank Dr. Dirk Baiihause for his contributions to this research work. 

For one, while it was financially sponsored by the API, l.e., by the entire petroleum industry, its operation took place outside industry, and its results were openly published."... 

As with other domains dealt with in this book, the road ahead is much longer than what has been achieved up to now in the general endeavour to make polymers from renewable resources. Whether the competition with the existing materials derived from dwindling resources will be successful or not depends almost entirely on the very concrete issue of the extent of financial sponsoring these novel research initiatives wUl receive. 

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