UPDATED: The resin distribution market was shaken March 21 when W.L. Ross Holdings Corp. bought a majority stake in Nexeo Solutions in a deal worth almost $1.7 billion.
Nexeo Solutions is a leading plastics and chemicals distributor based in The Woodlands, Texas, outside of Houston. The firm posted sales of $3.9 billion in the year ended Sept. 30. New York-based W.L. Ross now plans to change its name to Nexeo Solutions and continue to be publicly traded on the NASDAQ stock exchange.
Nexeo distributes resins, compounds and concentrates for more than 20 suppliers, including ExxonMobil Chemical, LyondellBasell, BASF and DuPont Co.
About 40 percent of Nexeo's $3.9 billion in sales come from plastics distribution, with the other 60 percent coming from chemical sales.
Nexeo was formed in 2010 when private equity firm TPG Capital of San Francisco bought the Ashland Distribution unit from Ashland Inc. for almost $1 billion. TPG will retain a 35 percent stake in Nexeo.
New York-based W.L. Ross was formed in 2014 as a unit for making a major acquisition or merger. It is affiliated with private equity firm WL Ross & Co., which was founded by well-known investor Wilbur Ross Jr. Ross will serve as chairman of the new Nexeo.
In a news release, Ross said that his firm “believes that Nexeo is an ideal platform to further roll up the fragmented chemicals and plastics distribution space.”
Ross's company also is the majority owner of International Automotive Components, a $5.9 billion auto interiors global supplier, which is also the second largest injection molder in North America and the 38th largest blow molder in the region according to Plastics News' most recent ranking.
Nexeo officials could not be reached for comment on whether the firm is a resin supplier to IAC.
Based on sales, industry estimates place Nexeo as North America's second-largest resin distributor, trailing only Ravago Group (including Muehlstein) and ahead of PolyOne Corp. and M. Holland Co.
Nexeo management — including President and CEO David Bradley — is expected to remain in place.
In the release, Bradley said that the W.L. Ross deal “allows Nexeo to align its ownership structure in a way that accelerates its progress towards defining distribution.”
The purchase price represents a multiple of 8.4 times Nexeo's estimated adjusted EBITDA for calendar year 2016. The firm employs almost 2,500 worldwide, including 500 sales reps. Nexeo distributes material from 170 locations worldwide and operates a private fleet of more than 1,000 vehicles.
The deal includes almost $1.3 billion in cash, as well as shares in the new company and assumption of debt. International financial firm Lazard acted as the sole M&A adviser for the deal.
Plastics financial pro Bill Ridenour said in an email that “as much as anything else, [this deal] is a function of the availability of cheap debt and an abundance of equity in the capital markets with which to fund acquisitions.”
Ridenour — president of Polymer Transactions Inc. in Foxfire, N.C. — added that “a multiple of 8-plus times adjusted EBITDA is not at all unusual for a business of this size.”
“One private equity owner replaces another, so it's really not much of a change,” a resin distribution executive said of the deal. “It could have been much more impactful if another global distributor or global plastic resin or chemical company bought Nexeo.”
The executive added that although he wasn't sure what impact the deal would have on North American resin distribution, he believes that W.L. Ross “will be more aggressive in the chemical and plastic resin distribution space in regards to mergers and acquisitions.”
Another industry executive said he was a bit surprised by the amount that W.L. Ross was paying for Nexeo.
“The information we had didn't warrant those numbers,” he said.
The second executive added that he “was curious to see what Wilbur Ross' thoughts are and how he plans to get synergy” out of Nexeo.