Private equity

When considering equity transactions some of the most significant issues to be considered are the valuation of the shares offered at the time of the offer and then at that date of closing which can vary, sometimes quite widely. Another factor which can have a bearing on the attraction of an equity transaction are the requirements for lock-up periods where shares cannot be traded for a defined time following the closing of the transaction. This can be a serious concern to private equity holders as there is an unknowable quantity of risk implied by waiting for the lock-up period to end and this will induce a very cautious approach to valuation as a result. Furthermore the ownership structure of a... 

In addition these activities have led to the formation of MarraM Advisors sari which has a special focus on the issue of governance in private equity financing and is engaged in the formation and structuring of a number of funds and now companies. 

In the future, medium-sized players in particular could be consolidation targets. They often suffer from cost disadvantages compared to mega-players, and lack the dedicated niche players strong position. Private equity firms in particular have developed a taste for the role of industry shapers. They accounted for more than 20 percent of all deals between 2000 and 2004, and over time they have built quite sizeable specialty players such as Rockwood Specialties and Hexion Specialty Chemicals, which combines Borden Chemicals, Resolution Performance Products, and other businesses. 

The chemical distribution industry has always been subject to ongoing, intensive M A activities. Recently, private equity investors have also demonstrated an increased interest in distributors (Fermont, M.). 

In the mid 1990s, buyout firms began to conduct leveraged transactions in the chemical industry. A slew of multi-billion dollar LBOs suggest the trend has intensified since the start of the new millennium. This chapter explores the relevance of private equity investors for the chemical sector and describes the value generation levers they apply it examines what traditional chemical corporations can learn from their financial competitors and concludes with a description of buyout firms challenges in the chemical industry and an outlook. 

Buyout firms, in turn, are keen to conduct transactions as they face pressure to employ the money raised from investors in recent years. According to estimates, the private equity industry as a whole raised USD 900 billion between 1998 and 2003 (3i/PwC 2000 to 2004). However, the industry has invested only about USD 800 billion, leading to a capital overhang of around USD 100 billion by 2003. Part of this immense capital wave is flooding into the chemical sector. European markets in particular are profiting from the capital inflow as many large and experienced US buyout firms have started only recently to build up resources in Europe in order to prepare for high profile LBOs (Lemer, J. et al. Dixit, A. Jayaraman, N.). 

Buyout value generation can also be differentiated by the degree to which it depends on specific characteristics of the private equity investors. At one extreme,... 

A detailed review of the levers applied by private equity players makes it clear that they are neither new to the chemicals business, nor ignorant of its particularities. Nevertheless, top-tier buyout firms perform so well that it seems that applying the right levers and aligning the interests of all parties can add significant value. 

The second real danger lies in exiting the acquired assets. Buyout firms are forced to sell portfolio companies at the end of the predefined limited lifetime of their funds. It is no secret that this has become more problematic in recent years and that the average retention time of assets has increased. In fact, relatively few have managed to successfully divest in the past few years and exiting portfolio companies is one of the top issues for private equity players operating in the chemical sector. 

Berg, Achim. 2005. What Is Strategy for Buyout Associations (1st ed.). Berlin, Germany Academic Readings on Private Equity, Verlag fur Wissenschaft und Forschung. 

Clow, Robert Smith, Peter. 2002. Scandals Help Break the Deal-Drought Life Has Come Back to a Moribund Sector. Financial Times, FT Report on Private Equity, December 12 p. 1. 

De Leenheer, Lien Wong, Melissa. 2000. Battle of the Atlantic U.S. Private Equity Groups Invasion of Europe. Journal of Private Equity, vol. 3, no. 3 (Summer) pp. 15-26. 

Dixit, Amit Jayaraman, Nithya. 2001. Internationalization Strategies of Private Equity Firms. Journal of Private Equity, vol. 5, no. 1 (Winter) pp. 40-54. 

Doran, Alan. 2000. Historical Performance of European Private Equity. In R. Lake R. Lake (Eds.), Private Equity and Venture Capital A Guide for Investors and Practitioners. pp. 241—248. London UK Euromoney Books. 

Hardymon, Felda, Lerner, Joshua, Leamon, Ann. 2003. Between a Rock and a Hard Place Valuation and Distribution in Private Equity. Harvard Business School note, no. 9-803-161 pp. 1-28. Boston, MA. 

Harper, Neil W. C. Schneider, Antoon. 2004. Private Equity s New Challenge. McKinsey on Finance, (Summer) pp. 1—4. 

Kaplan, Steven N. Schoar, Antoinette. 2003. Private Equity Performance Returns, Persistence and Capital Flows. MIT Sloan School of Management working paper, no. 4446-03, (November) pp. 1—45. Fontainebleau, France. 

Kehoe, Conor. 2002. Top Performance in European Private Equity. Speech given at the EVCA Annual Symposium, June 19. Athens, Greece. 

Lamm, R. McFall Ghaleb-Harter, Tanya E. 2001. Private Equity as an Asset Class Its Role in Investment Portfolios. Journal of Private Equity, vol. 4, no. 4 (Fall) pp. 68-79. 

Maier, Angela. 2004. Private-Equity-Borsengange oft schwierig. Frankfurter AUgemeine Zeitung, no. 134, June 12 p. 19. 

Smith, Paul L. Butler, Steve. 2004. Private Equity in Chemicals. Chemical Industries Association e[ Cogency Chemical Consultants Ltd., January 22 pp. 0-56. London, UK. 

Smith, Peter. 2003. Looking to Better Times on the Horizon. Financial Times, Special Report European Private Equity, June 11 pp. I—II. 

The Economist. 2003. The Charms of the Discreet Deal. Special Report Private Equity, July 5 pp. 59-61. 

What Attracts Private Equity Firms to the Chemical Industry ... 

European chemicals managers today are asking themselves the same question as their US counterparts did a decade or two ago how can private equity funds succeed, given their limited knowledge of the chemicals business itself Conventional wisdom says that such limited knowledge of engineering and chemical markets and a lack of operational synergies for such M A transactions should be obstacles to successful private equity investments. 

In an ideal world, a successful private equity investment would follow a clear trajectory identify a hidden, undervalued enterprise have a solid and actionable hypothesis on how to add strategic value finance it smartly develop a clear implementation path to improve the business strengthen the management to execute the strategy and find the best owner for the business at the exit point. In reality, of course, the situation is rarely so clear-cut, but some of these factors always play a role. In the real world, private equity firms also need to be involved in the evolv-... 

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