Issue Date: November 21, 2011
A New Course For A Maverick Buyer
International Chemical Investors Group, a private equity firm with headquarters in Luxembourg, started with a simple plan: Form a company comprising cast-off facilities of big chemical firms. Launched in 2005 by chemical industry veteran Achim Riemann and investment banker Patrick F. Schnitzer, ICIG stated its commitment to long-term investment, eschewing the standard private equity strategy of snapping up underperforming assets on the cheap, turning them around, and selling them.
In recent years, the company has fine-tuned its strategy: Become a force in fine and pharmaceutical chemicals by acquiring facilities shed by drug companies. But despite its record to date of buying and holding, industry watchers are still not convinced that ICIG has a long-term commitment to pharmaceutical chemicals.
No one can deny that ICIG has moved aggressively, closing more than a dozen deals in the past six years for sites across Europe and in the U.S. Outpacing most other investment firms, ICIG has racked up annual sales of $946 million. It has maintained an opportunistic tack, investing in performance chemicals, fibers, fine chemicals, and pharmaceuticals—roughly in that order.
Indeed, a pattern has emerged, with ICIG crossing over from fine chemicals to active pharmaceutical ingredients (APIs) made to the Food & Drug Administration’s current Good Manufacturing Practices (cGMP) standard with the 2008 acquisition of an AstraZeneca facility in Plankstadt, Germany.
ICIG’s activity has tended to reflect the kind of assets available to investment groups, so it is not surprising that recent acquisitions, such as Genzyme’s drug intermediates plant in Switzerland and Roche’s pharmaceutical chemical facility in Colorado, have involved plants cast off by downsizing drug companies.
“When we started, the goal was to participate and play a role in the restructuring and the consolidation of the chemical industry,” says Riemann, ICIG’s managing director. Much of the consolidation then involved diversified chemical companies exiting fine chemicals. Since 2007, the action shifted to drug companies paring back manufacturing.
A former executive with the German firm Rohm, Riemann says ICIG’s approach of converting acquired assets into independent profit-and-loss centers also has not fundamentally changed.
After its first acquisition of several businesses from RAG’s Rütgers division in 2005, ICIG broke off the fine chemicals part, naming it WeylChem. WeylChem is now a group within ICIG comprising all of the company’s non-cGMP fine chemicals. With the acquisition of the Plankstadt site, the company launched another division, Corden Pharma, conglomerating all its cGMP production, including finished formulations and peptides.
Both groups have burgeoned within ICIG’s holdings. Today, WeylChem is responsible for $380 million in annual sales and Corden Pharma for $340 million. The two units are each under the direction of fine chemicals industry veterans, even though the individual plants continue to operate as distinct businesses.
Wolfgang Niedermaier, president of Corden Pharma, says ICIG is loath to return its sites to the kind of large corporate organization from which they were discarded. “We find that we can gain efficiency if we really cooperate across the sites under the network model of independent companies,” says Niedermaier, who previously worked for Pfizer. At times, this approach might even pit one ICIG holding against another on particular projects.
“If we are working on peptides, we have to decide if the best solution is to go with Liestal or Boulder,” he says, referring to the Genzyme and Roche plants ICIG bought this year. Niedermaier sees the internal competition as a natural force evolving the businesses toward maximum efficiency. “In a certain way, yes, companies in the network are competing,” he says. “But in the end it comes down to who can offer the necessary product and service at the best price.”
Tomás Hainich, president of WeylChem, agrees, noting that his division competes with non-ICIG companies to supply Corden Pharma businesses with raw materials. Sometimes sites within WeylChem work together on particular proposals, providing advanced intermediates and reagents, for example, but they remain separate entities. “Everything is driven by common sense and commercial sense,” says Hainich, a former Lonza executive. “Synergies are not in operational costs but in a combination of technologies and finding projects larger than the capabilities of each site alone.”
ICIG’s approach involves a great deal of culture change for employees at plants that had operated as part of large organizations, Riemann notes. Other than Miteni, which came in as a discrete business, all of the sites ICIG purchased have had to convert to a new business structure. Once a site is acquired, its manager becomes chief executive officer of an independent company with responsibility for finances, human resources, and other functions once handled in distant corporate headquarters. On average, he says, about 50% of managers make the transition successfully.
ICIG has also made big cuts in employment at its new properties. At the Italian plant it acquired from Bristol-Myers Squibb, for example, staff has been reduced from about 800 to 500 in the first year. The company has already reduced the headcount at the Boulder plant from 273 to about 200, Riemann says. “We need to run these plants at a lower cost,” he says. “A contract manufacturing organization will not survive at the cost structure of big pharma.”
On the other hand, ICIG does make investments in plants it acquires, Riemann says. ICIG funded a recent $34 million conversion from mercury to membrane technology at the organobromines plant it acquired from Albemarle in Thann, France.
Industry consultant James Bruno, president of Chemical & Pharmaceutical Solutions, likes some of ICIG’s deals, notably the recent Boulder acquisition. “It tells the world that ICIG is still investing,” he says. And the plant’s proximity to emerging, services-reliant biotech companies on the West Coast is important. “The emerging guys will see Roche people. They don’t have to go to Europe, India, or China.”
Yet Bruno is not convinced that ICIG breaks the private equity mold with its commitment to hold acquired assets. “My question is, ‘Have they not sold them because they couldn’t get the price they wanted for them, or are they really serious?’ ” he says.
Riemann stands firm on ICIG’s strategy of holding assets for the long term. “We regularly get requests from people who want to buy companies from us, and they always get the same answer: ‘We won’t sell,’ ” he says. To the contention of skeptics who say some of its assets are so poor that ICIG was paid to take them away, Riemann is emphatic. “No,” he says. “We have paid.”
Not all of its acquisitions have succeeded. The company closed the three sites it acquired from Cambrex after an explosion at the Ireland facility and the loss of contracts at the plants in England and Belgium. ICIG also closed a second French organobromines plant it acquired from Albemarle in 2008 because of lack of business. And ICIG has sold one business, CarboTech, a maker of activated carbon for water and gas filtration that it acquired from RAG. But the company’s commitment to its other sites should be self-evident, Riemann argues.
He also emphasizes the company’s commitment to the nonpharmaceutical components in its portfolio such as its fiber business, Enka. ICIG drastically reduced production at what is now the only maker of viscose filament outside China and India. The site once made 100,000 tons of filament per year and was already down to 20,000 tons per year when the group acquired it in 2005. It now produces between 6,000 and 8,000 tons per year. “It is profitable, we have fun with it, and management does an excellent job,” Riemann says.
The lack of synergies with the pharmaceuticals operations does not make Enka a divestment candidate, he insists. “In terms of opening new platforms, we are still opportunistic,” Riemann says. “If a business outside our existing platforms comes up, we will look at it. But so far, we have not started any new platforms.”
Bruno says the fine and pharmaceutical chemicals industry is still in a wait-and-see mode on whether ICIG will remain one piece. It has a more “organized” mix of businesses than other private equity investors do, he says, but he still wouldn’t be surprised if the stereotypical move of selling off reorganized assets emerges at ICIG.
“I joke about pharma time,” Bruno says. “Pharma time is a lot longer than all the rest of the times out there.” Just as it takes the drug industry three or four years to adopt new technologies, selling a rejuvenated asset in the industry may take much longer than the six-month schedule for flipping properties in other industries. “Pharma,” he says, “is going to do it slower.”
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