Finnish chemicals group Kemira has agreed to sell off its fine chemicals business to a private equity firm, exiting from what it sees as a non-core sector, reports Phil Taylor.
The company making the purchase is 3i, Europe's leading venture capital firm, with the value of the deal estimated at over €70 million. And it suggests that the appetite of private equity firms for European chemical players remains undiminished.
Kemira Fine Chemicals has manufacturing facilities in Kokkola, Finland, and produces chemicals for a wide range of industries, including agrochemicals and pharmaceuticals. The company's net sales totalled approximately €50 million in 2003.
The move comes on the heels of a report from Ernst & Young, which concludes that despite some significant challenges in returning profits, private equity companies are still pursuing European chemical businesses. For example, earlier this year MG Technologies sold off its Dynamit Nobel fine chemicals business to Kohlberg Kravis Roberts, bidding along with Credit Suisse First Boston's private equity business.
E&Y has carried out a survey which finds that over the last few years, private equity firms have invested in 94 European chemical companies and divested 22 businesses. Typically these firms prefer to make a profit within 3 to 4 years, and the dearth of divestments underscores the difficulties in making these investments pay, it suggests.
The poor economic conditions affecting the broader European chemicals industry - including softening demand, the strength of the euro and high raw materials prices as the price of oil has reached record levels - is one of the drivers for the divestments.
E&Y notes that the desire of chemical companies to improve profitability through cost cutting and efficiency improvement - rather than via acquisitions - have contributed to the difficulties private equity firms face in turning a profit on their deals. Nevertheless, most of the private equity firms surveyed indicated they still remain interested in the chemicals sector.
While flotations to the stock market will remain limited, sales to other chemical companies, particularly those in America, Japan and India will be likely, predicts E&Y.
Engineering also sold off
Meanwhile, Kemira has reached an agreement to sell its entire holding in Kemira Engineering to PIC Engineering.
Kemira Engineering operates as a 70-person internal unit within the group to service Kemira's business areas. PIC is a 900-strong company focussing on providing engineering services to the processing industries, companies involved in production and manufacturing, the electronics industry and marine technology.
Under the terms of the proposed sale, PIC will provide engineering services to Kemira as required by Kemira.
PIC said the acquisition would enhance its know-how in the chemical industry and the company's position as a service provider in the process industry.