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On January 9, Chris Pappas, president and CEO of Styron, gave a speech at the Chemical Heritage Foundation as the featured speaker for their Joseph Priestly Lecture series. His topic was “Private Equity and the Chemical Industry: Trends, Challenges and Opportunities.”

Pappas spoke about how private equity (PE) has taken on a growing role in the chemical industry over the past two decades. He listed recent examples of private equity transactions in the chemical industry, and noted that since 2000, PE accounted for nearly 20 percent of M&A deals in the chemical industry.

“Private equity is playing a growing role in the chemical industry, and that role is one that creates value – for employees and for investors,” said Pappas.

Pappas described the basic principles that drive PE investors and how they seek to create value over a specific time horizon. He pointed out that PE firms today focus more on growing the company and improving the quality of the business, rather than strictly on cost cutting.

“In the early days of private equity, many PE firms focused on cost cutting and asset shedding as the primary way to gain value from chemical investments. Today there’s less opportunity for that,” said Pappas. “Most chemical companies are already running very lean, and are using leading edge management techniques, consultants and analytics -- the same ones that the PE companies would. Instead, today most PE deals in the chemical industry are emphasizing growth, often through consolidation and/or improving the quality of the business.”

Pappas cited several benefits that PE brings to the chemical industry through their investments in companies:

• P.E. provides liquidity that facilitates the flow of transactions – for example, acquisitions, divestitures, and joint ventures.
• P.E. enables restructuring among chemical companies, thereby making those companies stronger for the future.
• And P.E. provides the backing for investments that shape the future of our industry – whether that’s through direct investments into companies, or endorsing the companies’ own growth investments.

In describing the future may hold for this trend, Pappas said that PE will continue to make its mark on the chemical industry. He also predicted an increased number of Initial Public Offerings in 2014. “There are a number of PE chemical investments ‘lined up’ for IPOs, as their current PE owners look to monetize their investments.”

“Bottom line, private equity is here to stay. It has a valuable role to play and is shaping our industry in important ways for the future.”

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