Why are Private Equity Firms Acquiring Chemical Distributors Worldwide?

Publisher:
JIMS Journal
Publication Type:
Journal Article
Citation:
Journal of International Management Studies, 2013, 8 (1), pp. 108 - 113
Issue Date:
2013-01
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Private equity firms (PEFs) in recent times have been busy in acquiring chemical distribution companies worldwide. This paper examines both the drivers and strategies deployed in relation to these acquisitions. The paper concludes with a prognosis of future strategic options available to PEFs within the global chemical industry. This article is an opinion piece based on current and recent trends. It is evident that PEFs are acquiring chemical distribution businesses as a result of the opportunities arising from the fragmented nature of the industry. PEFs are able to acquire and consolidate the operations of these fragmented chemical distribution companies through actively participating in the management of these companies thereby creating efficiencies through integration and economies of scale. This allows PEFs leverage far greater value than their original investment in these acquired companies and thereby make significant returns on exit usually through IPOs. However, as greater disintermediation takes place in the industry chemical distributors may have to reinvent themselves as `pseudo manufacturers to stay in business in order to remain attractive to investors including PEFs. There is a dearth of concise analyses on the value of acquisitions in the global chemical industry by PEFs in practitioner literature. This article makes a worthy contribution in this respect by cogently charting PEFs strategies both past and present together with a prediction for the future.
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