Issue Date: April 9, 2007
An Investor For All Seasons
THE POPULAR IMAGE of private equity firms is that they exist to buy and rapidly sell businesses, turning quick profits for themselves and their investors. But International Chemical Investors Group was not formed to take the money and run, says Achim Riemann, managing director of the group. ICIG, he claims, is in the chemical business for the long term.
ICIG is different in other ways. Whereas large private equity groups such as Apollo Management, Blackstone Group, and Kohlberg Kravis Roberts buy controlling interests in a broad range of industrial assets, the Frankfurt, Germany-based group focuses on midsized chemical businesses of large corporations. And while the larger private equity investors control businesses with billions of dollars in sales, ICIG's operations are comparatively modest. It controls businesses with just $465 million in sales per year.
"We're not exit-oriented, so we're not a typical financial investor," Riemann explains. "We're a strategic investor using financial investment mechanisms."
Some observers are not convinced that ICIG's model is viable. "You would think if it made sense, there would be an opportunity for similar buyers outside Europe," says John E. Roberts, an analyst with equity research firm Buckingham Research Group. "I can't think of a U.S. private equity firm that operates this way."
Since ICIG began acquiring businesses in 2005, Riemann says, "the group has been particularly interested in specialty and fine chemicals operations, because we know the sector quite well, and there was a lot of restructuring going on." But ICIG's focus is not so limited. "We're flexible and opportunistic," Riemann says, referring to himself and his partner, Patrick Schnitzer. "If the business is interesting and for sale at the right price, we'll take it."
In less than two years, ICIG has acquired 10 businesses on behalf of its investors. In July 2005, ICIG arranged to purchase five Rutgers Chemicals businesses from RAG. Soon thereafter, the group acquired the Enka rayon business from Acordis, Albemarle's potassium and chlorine chemicals site in France, and two fine chemicals businesses from Cambrex. ICIG's most recent move, in December, was the purchase of the chemical microreaction technology firm Synthacon.
Though Riemann insists that ICIG differs from the big private equity firms, it won't turn a blind eye to a quick profit. At the end of December, ICIG sold a former RAG business, CarboTech, a maker of activated carbon for water and gas filtration. Riemann says the buyer, Schmack Biogas, a small engineering company developing a process to produce natural gas from biomass, "made us an offer we couldn't refuse." Schmack says it paid in the low millions of euros for the business.
Riemann formed ICIG in the second half of 2004. The group's investors are high-net-worth individuals and family trusts that are interested in regular dividends. That fact, he says, gives ICIG the flexibility to engage in joint ventures and collaborations other private equity firms wouldn't arrange.
FOR INSTANCE, a few months after ICIG acquired Enka, the rayon fiber maker agreed to form a joint venture with Jilin Chemical Fiber to produce rayon filament yarns in northeastern China. When it was part of Acordis and controlled by CVC Capital Partners, Enka wouldn't have been able to engage in such collaborations, because "the more complex a company is, the more difficult it is to divest," Riemann says. "We'll do what is necessary to develop our businesses," and that includes collaborating with others, he says.
Riemann, 53, is a chemist with a Ph.D. and an M.B.A. from Philipps-Universit??t Marburg. He started his chemical industry career in 1984 with methacrylates maker R??hm, now part of Degussa, working first in research and then as a marketing manager. He left R??hm in 1987 to join the management consulting firm Arthur D. Little, where he headed the firm's chemical practice and was managing director responsible for Germany, Austria, and Eastern Europe.
While he was working at Arthur D. Little, Riemann met Schnitzer, an experienced investment banker. Little hoped to participate in a venture fund to be set up by Schnitzer and others, but the idea ran into a roadblock when Little went into bankruptcy reorganization around 2001. Paris-based Altran Technologies bought the Little brand name, and Riemann continued working for the revived Arthur D. Little.
Riemann left Little at the end of 2003 to form ICIG together with Schnitzer, who is also a managing partner of Arthur D. Little Capital Partners, a private equity advisory firm associated with Arthur D. Little. "ICIG benefits from Schnitzer's contacts with the financial community and high-net-worth individuals," Riemann says.
Drawing in part on Riemann's management expertise, ICIG quickly reorganizes businesses it acquires. "Our investors are patient, but they don't like cash drains. We stop that quickly," Riemann says. Target profit margins for the acquired businesses are typically 5-15%. Instead of giving managers equity in the firms they operate, they get "a nice portion of the annual profits."
The jury is still out on whether ICIG's unconventional model for private equity investing will work. Riemann knows the company's approach has skeptics, but he says he and Schnitzer are undeterred and are even planning additional acquisitions.
- Chemical & Engineering News
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