News from The Valence Group Chemicals M&A conference: Organic growth at least as risky as M&A

Tuesday, 27 October 2015 | Joseph Chang | ICIS Chemical News

NEW YORK (ICIS)–Companies viewing organic growth as a low-risk proposition while eschewing mergers and acquisitions (M&A) as high risk may be misguided, the head of the private-equity firm Peak Investments said on Tuesday.

“Many view a focus on organic growth as a non-risk environment. But in many cases, two-thirds of R&D efforts are unsuccessful. I would submit that organic growth is just as risky, if not more than M&A done properly,” said Mike Boyce, chairman and CEO of Peak Investments.

Boyce spoke at The Valence Group/ICIS Mergers & Acquisitions (M&A) conference in New York.

Some of the investments of Peak include specialty silicas producer PQ Corp and the former Solvay Eco Services sulphuric acid regeneration business.

In making acquisitions, it is as important to define what you want to accomplish as to what you do not want to do, he said.

“We said we wouldn’t compete with China, would not invest in a business with big peaks and troughs, and would not take on environmental issues,” said Boyce.

In the 1990s, Boyce and his partners bought up a $30m salt business in Kansas, and rolled it up with 15-16 acquisitions over four years into a $1.1bn inorganics company, which is now Compass Minerals, he noted.

Today, Boyce sees further opportunities to roll up companies. Opportunities are corporate orphans – businesses with $100m or less that are non-core parts of larger companies – as well as family-owned businesses, and particularly in the inorganics space.

Valuations that buyers are willing to pay should be based less on the last 12 months’ results, and more on what a buyer can expect to generate in the future, he said.

One of the most important lessons learned is to “always have a 100-day plan”, said Boyce.

“In those first 100 days, you have a license to make changes. Employees as well as bankers expect that. Let that opportunity go, and the baton is taken away from you fairly fast,” he added.

As an expert on the inorganics industry, he noted that there are still opportunities for private-equity firms to make roll-ups in the titanium dioxide (TiO2) sector.

However, he noted that the debt structure of any deal and timing are critical as TiO2 is beset by peaks and troughs.