The market conditions for initial public offerings (IPOs) have slowed down in the recent weeks and private equity has moved in to fill the void. The newest deal in the making could be between a private equity company and Bayer’s plastics business.
According to a Reuters report on Wednesday evening, several private equity companies are looking into landing a deal with this £7.9 billion business. Bayer, which is a German drug maker, has previously been outlining its hopes to list the division. In September, Bayer told it wants to spin off MaterialScience and opt for an initial public offering, separating the division from the more profitable LifeScience business.
The company also appointed the investment bank Rothschild to look into the listing. Bayer has not been sure whether to list the company in Frankfurt or even the US stock market.
Bayer’s MaterialScience business provides over 2000 products, which include polyurethanes, adhesive and coating raw materials, as well as polycarbonates. It also provides transparent plastics for blu-ray discs as well as panoramic roofs for luxury cars. If listed on the stock market, it would become one of Europe’s largest chemical companies.
But private equity companies are trying to use the negative market conditions and divert Bayer’s plans into opting for a buyout instead. According to the report, private equity companies Advent, Carlyle, Cinven and KKR are among those wishing to acquire MaterialScience.
Analysts at Equinet have valued MaterialScience close to the £7.9 billion, with brokerage DZ Bank telling it is worth a lot more. In addition, the group has profit margins of less than half across Bayer’s different divisions and have especially suffered from the recent increase cost of raw materials.
When Bayer announced its plans to spin off, the share price hit record highs. Despite some trouble with costs, there has been some positive news regarding earnings at MaterialScience. According to ICIS, MaterialScience’s earnings on the first quarter this year before interest and taxes stood at £172.5 million, which is a big improvement from £33 million during the same period last year. Nonetheless, Post Gazette reported that the division “comprised 29 per cent of last year’s revenue but only 8 per cent of operating income” for Bayer.
But it might be a while before any details or indeed any deal goes through. Reuters’ sources said the company might hold until next February before it makes a decision on a bid. February sees the next full-year results. Naturally, this might also mean that the company decides to list the division after all.
Furthermore, private equity funds might form consortia, potentially even including sovereign wealth funds (SWFs). According to Reuters, one of the sources told, “all the SWFs and pension funds are being drafter in”.
Bayer, Carlyle, KKR and Advent all declined to comment on the reports on Wednesday. CVC and Cinven were also not available for a comment at the time the news broke out.
Recent weeks have seen plenty of similar developments. It is evident that private equity companies have a great window of opportunity to invest, although companies have to compete with numerous other private equity firms for the same deals.