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Private placements in the European chemical industry

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Hydrocarbon Engineering,

Frost & Sullivan has released its latest report, ‘Private Placements in the European Chemicals Industry 2010 - 2015’. According to the report, the trends in the European chemicals industry have been closely tied to economic cycles, as most of its segments cater to major end markets such as construction and automotive that are relatively mature in their industry life cycle.

Private placement activity in the European chemicals industry picked up after the global financial crisis in 2008, when the economy showed gradual signs of recovery, especially in key industries such as construction and automotive. This spurred the demand for chemicals used in these recovering end markets and, in turn, boosted the performance of chemicals manufacturers. With better performance came more investments from private investors. However, the impact of the Eurozone debt crisis in 2014 resulted in a sharp decline in private placements, as the industry struggled to establish sound financial results.

European chemical companies have consistently been at the forefront of providing sustainable solutions to their end customers. This has given them an edge in bringing about superior product differentiation in global markets. Their ability to consistently release innovative products and new technologies has been a key driver for venture capital (VC) and private equity (PE) investments.

However, the rising cost of energy, feedstocks, and labour has severely crippled the competitiveness of industry participants. This challenge was more pronounced for startups, and small and medium enterprises (SMEs). Moreover, fierce competition from companies in the Middle East and Asia intensified the challenge, as they had easier access to low cost energy and feedstocks.

Startups and SMEs struggle to raise funds from capital markets to finance their research and development (R&D) for innovative products and new technology initiatives. Therefore, their reliance on VC and PE funding is more significant given the need to preserve Europe's competitive edge in product differentiation.

The most popular industry subsegments that were targeted include plastic and synthetic resins, industrial inorganic chemicals, polymers, industrial coatings, paints, varnishes and lacquers, and adhesives and sealants. The larger scope for differentiation through product innovation and advanced technology has been the key reason for attracting more private placement volumes.

Adapted from press release by Rosalie Starling

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