Chemistry and Chemicals Industry : Chemistry and Chemicals Industry Hannu Isohaaro National Technology Agency of Finland and Chemical Industry Federation of Finland Seminar 18.11.2004 www.3i.com


Contents: Contents 1 Background 2 The Market 3 Private Equity in Chemicals Additional information 4 Investments in Chemicals 5 About 3i


Chemicals : Chemicals Portfolio currently includes over 60 companies. Seven new investments made in the last four years. Out of the previous investments Holiday Chemicals, Zotefoams, UCM and Meconic were all successfully floated on the London Stock Exchange. Currently the portfolio includes Esmalglass, a Spanish producer of glazes and colours for the tile industry, Thor chemicals, a UK based producer of biocides and textile chemicals, LaChemie, an Italian specialist manufacturer of esters such as triacetine. The latest invest was made to Kemira Fine Chemicals, a Finnish producer of agro chemical and pharma intermediates and active ingredients. Background


Exciting sector: Exciting sector In the past 10 years PE investors have invested into 100 Chemicals companies. Interest in this industry is expected to remain high, with an estimated EUR 10 bn of assets available for acquisitions. European chemicals conglomerates will continue to restructure and divest non-core assets. EU is the largest chemicals producer with revenues over EUR 500 bn. 10 Years 100 deals Background


Chemical companies in Europe >1bn Sales: Outside German speaking Europe only few large Chemical Corporates remain Chemical companies in Europe >1bn Sales The Market


17 large Chemical Corporates: Henkel Merck However, > 70% of European Chemical sales come from German speaking owners 17 large Chemical Corporates The Market


The world chemicals production 2002: The world chemicals production 2002 Source: CEFIC EUR 1,921 bn Europe has a strong position in the global chemical industry The Market


LBOs in Europe over the last 12 months: LBOs in Europe over the last 12 months Source: Mergermarket/Private Equity News January 2004 Value (%) Volume (%) The Market


The European Chemical Production: The European Chemical Production Man Made Fibres 2.0% Petrochemicals and Derivatives 13.4% Industrial Gases 1.4% Other Inorganics 3.8% Plastics 13.5% Synthetic Rubber 0.9% Fertilizers 2.0% Agrochemicals (Crop Protection) 2.7% Pharmaceuticals 25.9% Dyes and Pigments 2.5% Paints and Inks 6.5% Other Chemicals 12.6% Oleochemicals 0.8% Perfumes and Cosmetics 7.4% Soaps and Detergents 4.6% Inorganic Chemicals 5.2% Plastics and Polymer- related Products 14.4% Agriculture, Food Chain and Protection Products 4.7% Specialties, Performance and Consumer oriented Products 21.6% Oleo- chemicals Surfactants and Derivatives 12.8% Source: CEFIC The Market


3i portfolio in January 2004: 3i portfolio in January 2004 Portfolio Number of Co (Total 2.000) Support & Services (124) 6% 3i has done 61 investments in Chemicals The Market and 3i


Slide12: Source: SDC Platinum/Mergermarket/KPMG Private Equity Group 0 2.000 4.000 6.000 8.000 10.000 12.000 14.000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Ca. 0 10 20 30 40 50 Volume $m Number of Deals Financial Buyer Activity in the Chemical Industry Chemicals appears to be an attractive Sector for PE In 2002 20% of all acquisitions in Chemicals were PE financed, in 2003 30%, for 2004 40% are expected The Market and PE


Slide13: Since 1999 Ca. EUR 20 bn new chemical assets in PE Portfolios Secondary pipeline is filled with up to 40% of 2004 divestitures in the sector expected to come from PE Transaction volume (EUR bn) Year The Market and PE


Valuations have reached levels which are fundable for Private Equity: Valuations have reached levels which are fundable for Private Equity Source: Lazard PE Investors have been much more disciplined in pricing The Market


Whilst substantial Public to Private opportunities appear to exist in the sector: Whilst substantial Public to Private opportunities appear to exist in the sector 3M Dupont Dow BASF Bayer Shin-Etsu Air Liquide Norsk Hydro Air Prds. PPG Akzo Nobel Praxair R&H BOC Altana Degussa Sunitomo Chem. Solvay Henkel ICI Ciba S-Williams UCB DSM Mitsubishi Chem. Givaudan Sigma Ald. Mitsui Chemicals Eastman Lonza Engelhard Johnson IFF Clariant Kaneka Ashland Valspar Mitsubishi Rayon Hitachi Chemical RPM Tosoh Lyondell Showa Denko Lubrizol EMS Cabot Rhodia Dainippon Ink OM Group Gt. Lakes Crompton Albermarle MG Hercules Cytec Celanese Cambrex Ferro Nippon Shokubai HB Fuller Nippon Sanso Olin Milennium FMC Polyone Kemira Tessenderlo NL Industries British Vita Macdermid Nippon Paint Solutia Yule Catto Croda Wellman Sika Arch Mitsubishi Plastics Victrex Siegfried Chemfirst Elementis WR Grace Scapa Tokyo Ink Europe US Asia Market Capitalisation of Chemical Companies Source: Lazard The Market


EXITING has been difficult: EXITING has been difficult Since 1994 there have been only 22 out of the 94 PE investments in the sector. The IPO market has been closed, because of general economic conditions. This has made exiting more difficult. The Market


IPOs and Secondary Issues were very limited in the Chemical Industry: IPOs and Secondary Issues were very limited in the Chemical Industry Source: Lazard


The main drivers for the growth of PE activity in the industry: The main drivers for the growth of PE activity in the industry The difficult market conditions have affected the industry; strategic investors have less appetite for M&A Pressure from international competition has grown significantly in recent years Industry is forced to focus due to high cost of raw materials and increasing pricing pressure as well as stretched balance sheets Difficult market environment Focussing business on core activities -> sale of non-core activities Restructuring business for improved efficiency and lowering of costs Capital increases restricted by low share prices; refinancing through divestments is gaining importance Pressure from competition High cost of raw materials / pricing competition Focus Restructuring Low share prices


Summary: Summary Very large industry with strong production base in Continental Europe Most owners and potential sellers based in German speaking Europe Many PE financed transactions over the last few years Substantial consolidation opportunities remain Valuations appear attractive for PE Historic PE returns have been good


Why Chemicals?: Why Chemicals? Many assets with characteristics attractive for PE: strong cash flows high entry barriers with IP protection and high degree of innovation strong M&A activity and consolidation and de-consolidation trends often well invested capacity base wide range of deal sizes international industry with specialist niches scalable business models attractive for backable managers! Summary


Why Chemicals?: Why Chemicals? Large sector with many opportunities (but still technically driven and often undermanaged) Strong historic returns in the sector for PE Many Corporate sellers few family vendors But Deals tend to be more complex and larger (environmental issues, Carve Out, Verbund, Exits) but with less competition, as fewer credible and experienced investors active -> opportunity Risk of commoditisation Summary


Slide22: Chemical PE deals 2000-2003 Investor No. of Deals Transaction Value 3i* 6 375m Bain 4 2,550m Permira 3 3,245m EQT 1 2,000m Advent 1 500m Investcorp 1 375m Cinven 1 350m *3i deals: Esmalglass, A-Gas, Condepols, La Chemial, Lonstroff, Labiana


Slide23: Additional information For further information visit our website www.3i.com


3i Chemicals Investments: 3i Chemicals Investments Thor products can be found in a variety of industries from newspapers to cosmetics, from building and construction to high fashion. With production units and operating companies strategically located in 13 countries worldwide, Thor's activities centre on the production and supply of a wide range of speciality biocides and textile chemicals. Our technical expertise and experience and ongoing commitment to research and development has firmly established Thor as a leading manufacturer of isothiazolinone based biocides and an acknowledged world leader in the development of flame retardant chemicals. Name of company Comments La Chemial, Italy La Chemial :a Chemial is a manufacturer of chemicals known as esters, acetates, benzoates, phthalates, etc. These products are used in many applications, in flavours, flavourings, tobacco, cosmetics, inks and many other industries. La Chemial manufactures in Italy but sells throughout the World and is a market leader in its field. http://www.lachemial.com Tato Holdings, UK


3i Chemicals Investments: 3i Chemicals Investments Robinson Brothers is comprised of two divisions. Robinson Brothers itself makes Amines, thioureas and a variety of related cyclic and aliphatic compounds based on nitrogen and sulphur containing radicals. Robac makes and supplies speciality chemicals to the rubber and plastics industries. Name of company Comments A-Gas A-Gas is a blender, packer and distributor of speciality gases and chemicals. These products include environmentally acceptable replacements for CFC's, which are being phased out under the Montreal Protocol. Operating from premises in the UK, Australia and South Africa, A-Gas distributes refrigerant products for air conditioning and chilling applications and foam blowing agents for the construction industry. Secondary applications include propellants for aerosol products and solvents Robinson Brothers


3i Chemicals Investments: 3i Chemicals Investments Name of company Comments KemFine Kemira Fine Chemicals (KFC) is a leading “Tier 1” supplier of fine chemicals for the agrochemical and pharmaceutical markets. It has exclusive long term supply agreements with four of the top six agrochemicals companies as well as selected pharmaceutical companies. Employing 180 staff, KFC is based in Kokkola, Finland, where it operates six state-of-the-art production lines, producing chemical molecules which require complex multi-synthesis processes. Kemira’s unique know-how, high class R&D and high quality production processes mean it has built a strong degree of thrust with its customers, making a partner of choice for new products. The existing management team leading the buy-out have been supplemented by an investing chairman. We have brought Yrjö Sipilä, formerly the head of industrial chemicals in Kemira and a member of our NXD programme, into the buy-out as well as Matti Packalen, a member of our Chairman’s Board and a former board member of Kemira.


3i – the facts: 3i – the facts A world-leader in private equity and venture capital Established for 59 years FTSE 100 company valued at €5.1 billion Over 540 trade sales and 72 IPOs in the past 5 years Over 270 market-facing investment professionals Proven international, cross-border offer International scale and reputation About 3i As at 30 September 2004


3i as a business partner: 3i as a business partner Dedicated to value creation Active across all funding stages Active partners Internationally connected Scale with agility Proven track record About 3i


Active across all funding stages: An exceptional range of venture capital and private equity solutions Active across all funding stages About 3i Venture capital Early stage Focus on technology Investments of €1.5-€40 million €865 million portfolio Growth capital A range of bespoke solutions Investments of €8-€80 million €1,955 million portfolio Buyouts Smaller & mid-market buyouts Transactions up to €750 million €3,190 million portfolio As at 30 September 2004


Working with corporates: Working with corporates As a FTSE 100 company, 3i understands corporate needs 3i offers opportunities to: buy or sell businesses acquire new technologies build relationships with new partners When 3i is investing: early view on value smooth ownership transition commitments that can be relied upon flexible approach focused on delivery 3i’s reputation makes us a highly credible partner Commitment, thoroughness and delivery About 3i


3i’s global offices: Europe Aberdeen Amsterdam Barcelona Birmingham Bristol Cambridge Copenhagen Düsseldorf Frankfurt Glasgow Helsinki Leeds London Lyon Madrid Manchester Milan Munich Paris Reading 3i’s global offices 3i - connecting talent and experience About 3i Asia Pacific Singapore Hong Kong US West Coast East Coast Stockholm Stuttgart Vienna Zurich


Slide32: thank you For further information visit our website www.3i.com