The First ICIS World Surfactants Conference

(May 12^th and 13^th Weehawken, NJ)

I was honored to chair the first ICIS World Surfactant Conference, which took place last week after about 7 months of planning between myself and the ICIS conference team. Based on the feedback I got from many people, whose counsel and opinion I value, the event was a success. The ICIS folks agreed and some preliminary planning has already been done around the next conference. Nothing has been finalized, but I can give you an early hint about one aspect. The venue will be much bigger! Why? Because last weeks conference actually sold out twice – even after getting more space – and the people on the waiting list are already vowing to register early next time.

To give you a flavor of what around 150 people experienced in the room over 1^1/2 days, I note below, the line-up of speakers and just one interesting point that I took away from each while chairing the conference. More comprehensive coverage of the event will no doubt appear in ICIS Chemical Business magazine over the coming weeks and in the ICIS Green Chemicals Blog, penned  by our good friend and colleague, Doris De Guzman who pretty much live-tweeted the entire proceedings (complete with “twitpics”) from the front row.

Neil Burns of Neil A Burns LLC: I tried to give an overview of the key issues that would be explored during the conference – which I summarized as Value Chain, Volatility, Sustainability, Globalization and M&A. Not as catchy as Tom Nelsons “VUCA” but set the tone for the rest of the event.

Pascal Juery of Rhodia : Company is focusing on sustainability and growing regions of the world. They have been in Brazil for 100 years. Still lot of room to grow and consolidate as the specialty surfactant market is still very fragmented.

Bill Tittle of Nexant: North America set to become a net exporter of EOD’s as advantaged ethylene is converted to purified EO for ethoxylation.

Mohammad Al-Bibi of Farabi Petrochemicals: Farabi will commission a second 120 KMT/yr LAB plant in 2012 helping ensure the middle east remains a net exporter of LAB going forward.

Kongkrapan Intarajan of Emery Oleochemical: Emery’s aggressive growth strategy is driven by vertical integration (Sime Darby and PTT parents), Global Presence and Technology Access (recent ventures with Aekyung in Korea and ERCA in the Netherlands). By 2015, the business mix is expected to be 50:50 base oleochemicals : specialty derivatives.

Janet Crawford of Akzo Nobel: Tallow now costs 60% more than crude oil on lb for lb basis. At this point, expect to see demand destruction in surfactant markets.

Gillian Morris of Kline and Co. : $800 Million market for specialty surfactants in personal care with still 45% of that in Europe!

Jochen Flucht of Henkel: Henkel will play at all stages of the supply chain; including, for example, hedging kerosene for their LAB/LAS purchases.

Brian Chung of Rhodia: 100% naturally derived SLES, uses ethylene oxide made from ethylene derived from ethanol made from molasses via fermentation.

Tom Nelson of P&G: P&G is working with LS-9, Amyris, Braskem and others to try to mitigate the volatility and price pressures from traditional petrol and oleo raw material supply chains.

Icilio Adami of Desmet Ballestra: The new enhanced loop ethoxylation technology represents a breakthrough in terms of efficiency, throughput and capital cost effectiveness for ethoxylation.

Chris Cerimele of Houlihan Lokey: The surfactant industry continues to eb shaped by M&A. Western companies tending to divest oleochemicals while Asian oleochemicals companies tending to seek technology driven investments.

Alessandra Lancellotti of Frost and Sullivan: There are 15,000 companies in personal care in Brazil and the country is the number three consumer of such products in the world.

Bob Moser of Brenntag: Distribution is a fragmented market with plenty of room to grow. Brenntag has a 6.9% market share followed by Univar at 6.0% and Nexeo (formerly Ashland) with 2.8%.

Walter Rakitsky of Solazyme: Walt opened up the “surfactant revolution” part of the conference with a vision of designer oils produced via genetically engineered algae from a variety of biomass feedstocks. Technology is proven and being scaled up by this company that has already filed for a $100 Million IPO after being funded by VC and strategic investors.

Andy Shafer of Elevance : Andy rounded out the surfactant revolution with his vision of the Elevance metathesis technology as implemented in a series of biorefineries (180 KMT/yr first unit to commission this year in Surabaya). These plants to provide surfactant feeds from sourced uncoupled with crude or palm oils.

In summary, I was very pleased with the quality of speakers and participation by the delegates. Given that, I regarded myself as very fortunate to be able to chair the event and to work with such a talented team at ICIS in putting it together. Next year – a bigger venue and a continued focus on high profile, interesting speakers.

Chemical Distribution – Why so Attractive to PE Funds?

The recent announcement that TPG will acquire Ashland’s chemical distribution business was no surprise to most of the North American distribution community. What is noteworthy however, is that, again, a major chemical distributor has found a home in a private equity fund’s portfolio. Ashland now joins Brenntag (BC Partners investment – recently IPO’d), Univar (Clayton, Dubilier and Rice recently joined CVC as investors) and Azelis (3i) as a PE owned chemical distributor.

In addition to these large (USD Billion +) deals there have been a number of recent smaller deals in which PE firms have invested in chemical distributors. These include Post Capital’s investment in BHS and AEA’s investment in Reladyne. Reladyne is a consortium of four regional lubricant distributors.

Other deals in the distribution space are rumored to be in the pipeline and we’ll comment on those as they are announced. Coincidence? No. So, what’s the attraction of distribution for PE firms? In our view, it’s three major of factors:

• The industry is fragmented and there is still significant room for consolidation. North America is the most mature market where the top 5 players have around half of the market. Europe is much less concentrated and Latin America and Asia, less so again.

• Distribution businesses enjoy economies of scale. The ability to manage larger networks with a relatively fixed investment in IT and management systems is one factor driving consolidations financed by PE funds.

• What was once primarily a relationship business now lends itself to quantitative management methods, well understood by private equity companies and their consultants.

The case for chemical distribution as an interesting investment is made fairly convincingly by the data in a paper by BCG, published earlier this year.

Looking forward, we see continued acquisitions by the North American big three, Ashland, Brenntag and Univar and by others. Consolidations driven by the scale related factors above will continue to be financed by these PE sponsored companies. Owners of small, regional and specialized chemical distributors may therefore find 2011 a good year in which to sell – or to compete in the interstices left between the ever larger market leaders.

Tweet