Issue Date: April 9, 2012
A Pine-Fresh Start
In this election year, the practices of private equity firms have received some negative press. A popular story line is that the firms buy underperforming businesses, load them with debt, and lay off workers in an attempt to make a quick profit.
But it looks like a different story for the former pine chemicals business of Hercules. In January 2010, Canadian private equity firm TorQuest Partners bought the business and gave it back its old name: Pinova. The way new Pinova Chief Executive Officer Theodore H. Butz describes the change in ownership is that it was akin to being rescued from an orphanage by Daddy Warbucks.
In the pine chemicals industry, “what you need is a parent who loves you,” Butz tells C&EN. “The initial view on Pinova was that it had long been a noncore, less important part of Hercules and had lost its focus.” When TorQuest purchased the firm, Butz says, it quickly invested in upgrading the company’s Brunswick, Ga., facility. It also added new roles and positions in the business, including a dedicated sales force.
The outlook for Pinova was further boosted in late 2010 when TorQuest bought the pine-based flavor and fragrance business of LyondellBasell Industries. That business, now named Renessenz, is a sister company to Pinova under the Pinova Holdings umbrella. “We see a lot of growth for the businesses. Both have been around for over 100 years,” Butz says.
Together, the two firms have more than 400 employees and brought in roughly $300 million in revenues last year. Pinova is the world’s only major company to extract refined wood rosin and wood terpenes from pine stumps. It targets industrial niche markets—particularly adhesives—as well as specialty applications in food, beverages, and personal care.
Renessenz derives most of its aroma products from crude sulfate turpentine (CST), a by-product of the pulp and paper industry. It already had a strong position in flavors and fragrances, and management is tackling new applications such as flavoring coolants. Pinova also uses CST as a raw material, and both companies sell limonene derived from citrus peels.
Pinova’s use of renewable raw materials can be both a blessing and a curse. Butz says he recently met with two major personal care customers who are keen about the marketing potential of the ingredients that Pinova supplies. “The sustainability advantage of this industry is huge,” he says.
Yet renewable raw materials are also subject to the vagaries of nature and constraints on supply. Donald Stauffer, a one-time Hercules employee who heads the consulting firm International Development Associates, in Mendenhall, Pa., says Hercules struggled in the past to obtain the pine stumps it needed to run the business. He adds that the business also must compete with Arizona Chemical, Georgia-Pacific Chemicals, and MeadWestvaco, all bigger companies that produce low-cost pine chemicals from CST.
Butz, who joined Pinova in November 2011, argues that raw material supply isn’t a problem. Ten years ago it was, he acknowledges, but since then the company has exited low-margin businesses that were sucking up a lot of raw material. In 2011, Pinova commissioned a study that showed the company consumes less than 10% of the annual pine stump wood available in the Southeast U.S. each year. And thanks to internal innovation efforts, the company has become better at tapping younger stumps and a wider variety of stumps as feedstock.
Pinova is paying more attention to its supply chain in other ways as well. Butz recently brought in a vice president of strategic materials and business development to oversee all the major raw materials for the two businesses, including stumps, gum rosin, limonene, menthol, and CST.
Butz also takes issue with Stauffer’s contention that companies such as Arizona Chemical and Georgia-Pacific threaten Pinova. In years past, Hercules produced pine oil and other low-margin pine chemicals that put it in competition with those larger firms. But today, Butz says, both Pinova and Renessenz are in many specialized businesses that the other firms don’t pursue.
One of his mandates is to go even farther down the road to specialization. Prior to his arrival at Pinova, Butz led the biopolymer business at specialties firm FMC. That business also sold refined natural products—such as cellulose and alginates—to the food and personal care industries. Butz believes he was brought in because of his experience with those regulated markets. Pinova recently upgraded its Brunswick facility to meet the Food & Drug Administration’s Good Manufacturing Practices.
In addition to operational enhancements, Butz says, growth will happen—as it did at FMC—by developing the businesses’ technical service capabilities. Flavor and fragrance applications are expanding at 3–4% annually in developed regions and up to 6–8% in emerging economies. “Innovation of our customers is high, so you have product turnover all the time. You have to be the supplier that they call when they are formulating, and you have to deliver at a cost that is competitive,” Butz says. That attention is also critical to the specialty adhesives markets, he says. “Our tackifiers have to work well with other polymer systems.”
Pinova is also seeking to develop niche applications in construction materials, including resins used for high-performance concrete and for specialty adhesives, sealants, and coatings. It has seen notable growth in what was once a small business in agricultural adjuvants, which help crop chemicals stick to foliage and extend the life of active ingredients.
Acquiring or partnering with other firms that use natural raw materials and have similar customers is another way Pinova would like to grow, Butz says. And the firm is eyeing biotechnology because making flavors and fragrances through fermentation holds the promise of less volatile ingredient prices. “I feel pretty comfortable that, down the road for our industry, biochemistry has a role to play,” Butz forecasts.
Meanwhile, the fact that the pine chemicals industry has long been based on renewable raw materials has been an undermarketed story, Butz says. Using wood stumps is “beyond renewable,” he says. “As you pull out stumps from a field, it can be put to more productive use—farming or planting. Landowners are always cursing the stump that is left in the ground.”
Likewise, Pinova’s owners are helping to clear the way for new growth. “Some people mistake what private equity is, calling it slash and burn. But we don’t see that. We see a new renewal for the business,” Butz says. “We’ll create a very strong platform for the next 15 years—wherever we end up—with growth in renewables at the center.”
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