PAH - Platform Acquisition Holdings

[CorpRaider]

DD is spinning off TiO2 and refrigerants. That's performance chemicals but really somewhat commoditized.

 

I'm no chemical engineer but I think the Macdiarmid businesses are more like some if the lines that Lubrizol is in. Hydraulic fluids, photopolymers, industrial coatings, etc.

 

Thx for the info!

[Liberty]

http://seekingalpha.com/article/2043973-platform-specialty-products-outliers-preparing-worlds-next-greatest-industrial-company

[jouni1]

i e-mailed their IR about the founder shares about a month ago to ask if the shares actually get 20% of stock appreciation * number of common stock.

 

no answer.  :'( i was hoping to be proven wrong so i could invest in this. i love pretty much everything else about the company. well, the price not so much. at least this way, i have a 7 year learning period before investing  8)

[Liberty]

http://ir.platformspecialtyproducts.com/releasedetail.cfm?ReleaseID=840756

 

Platform Specialty Products Corporation Announces Agreement to Acquire Agrochemicals Business From Chemtura for Approximately $1 Billion

 

Presentation here:

 

http://files.shareholder.com/downloads/AMDA-2DC2F1/3099352763x0x744657/1880886b-226c-4610-adb0-0980d4401942/FINAL%20Platform%20Investor%202014-04.pdf

[fareastwarriors]

Chemtura to Sell Agrochemicals Business

 

Deal to Sell Business to Platform Specialty Products to Be Announced Thursday

 

 

http://online.wsj.com/news/articles/SB10001424052702304626304579506403938178382?mod=WSJ_qtoverview_wsjlatest&mg=reno64-wsj

[Grahamisback]

Horizon Kinetics - 1st Quarter 2014 Commentary - http://www.horizonkinetics.com/docs/Q1_2014_Commentary.pdf

 

A recent purchase in certain strategies is Platform Specialty Products (ticker PAH).

(...)

The thesis is that Mr. Franklin will oversee a series of acquisitions, priced well, integrated effectively, eventually with the further benefit of scale economies, and that there will be a suitably large supply of acquisition candidates. If this thesis bears fruit, one can readily see that in success mode PAH can be far, far larger in the foreseeable, though not near, future. The rewards for the patient would be suitable.

 

 

[jouni1]

i wish i could buy some founder prefs  ;D have to keep this one on the watchlist. maybe david winters will send them a mean letter.

[Grahamisback]

Bill Ackman - Martin Franklin's next platform (beginning at 1:43:56)

 

http://www.vpsevent.com/webcast/

[Liberty]

Platform Specialty Products Corporation ("Platform") PAH +6.28% announced today that on May 14, 2014 it entered into subscription agreements with certain eligible purchasers for the purchase of a total of 15.8 million shares of its common stock for an aggregate purchase price of $300.2 million, or $19.00 per share. Such shares will be issued through a private placement, which is expected to close on or about May 20, 2014, subject to customary closing conditions.

 

Platform intends to use the net proceeds from this private placement to support future growth and for working capital and other general corporate purposes, which may include Platform's previously-announced proposed acquisition of Chemtura Corporation's AgroSolutions business, if completed, and the possible acquisition of other businesses.

[eclecticvalue]

I missed out when it was between 19.30-19.50 in the past couple of days. I hope it can come back down that price range sometime soon.

[moody202]

I'm struggling to value this company. Can someone share thoughts on valuation or provide pointers?

[Picasso]

I have been working through the presentations and acquisitions and ran into a couple questions.

 

They seem to be calculating free cash flow without interest and taxes.  Is this a fair way of valuing the business?  I can understand leaving out interest if you are looking at unlevered free cash flow on the $7 billion enterprise value on the pro forma entity.

 

Second, they are pointing to 19.4% ROIC on 2013 combined entity.  But they seem to calculate it on a cash ROIC metric which adds back in R&D and depreciation and similar funny math with the invested capital denominator.  My question is, the more time that goes by will we see that form of calculating ROIC cause a decline in the 19.4% number they quote?  I guess the real question is whether that is the right form of ROIC to calculate on a specialty chemical business.

[PhatKing]

PAH, though currently at a fair price (not at a value price) has executed well in the past 12 months or so. This is building my confidence that its revenues and earnings several years from now are likely to be significantly higher than they are today. As most of you know, the company was formed as a SPAC with 3 players: Nicolas Beggruen, (investment company Beggruen Holdings with 6.5 million shares); Bill Ackman, (Pershing Square with 33.3 million shares); and Martin Franklin (founder of Jarden with 7.3 million shares).  That was done at $11.50 per share. What caught my eye a few weeks ago was the fact that Bill Ackman recently purchased another 9.4 million shares at $25.59. Why had he done so? And this after the stock has run from about $15, since January of this year.

 

What is this business? Well, PAH intends to build a portfolio of industry-leading, best-in-class, specialty chemical verticals. The type of companies that they hope to acquire are defined (by PAH) as having a business model that is “asset lite” and “high touch”.  The Asset lite model for the specialty chemicals industry implies that the business uses molecules supplied by others, and then mixes/blends them to produce special, and unique  formulations, with performance characteristics that address specific customer needs. PAH claims that it seeks products that will focus on functionality, and not chemical composition.  The company believes that providing superior technical service to their end-users, is a significant differentiator. The skilled R&D and customer facing technical staff, make up the “high-touch” component of the business model. You can read more in their annual report for 2013 – it is a well written, and, highly recommended read.  In summary, this is certainly a great strategy, IF it can be implemented well.

 

So what have they done so far?

 

1) The SPAC acquired MacDermid from a private equity firm for $1.8 billion, with 2013 sales of about $750 million, and EBITDA of $180 million (24% EBITDA margin). MacDermid is a specialty company, run by Dan Leever, deemed as a likely “outsider” CEO, by The Brooklyn Investor. I happen to believe that as well. I would highly recommend that you read the following well-written post from The Brooklyn Investor.

 

http://brooklyninvestor.blogspot.com/2013/11/platform-specialty-products.html

 

MacDermid produces specialty chemicals for a wide range of industries, and its products are proprietary chemical formulations, that add value to their customers, creating moat effect. They are very asset lite – only $140 million in PP&E which is very “lite”, compared to revenues in 2013 of over $750 million.

 

2) They have built the Agricutural vertical by acquiring 3 privately held firms focused on Crop protection, for about $5 billion – Agriphar ($400 million), Chemtura AgroSolution ($1 billion) and Arysta LifeScience ($3.51 billion). The Agriphar and Chemtura acquisitions have already closed, and Arysta will close by Jan 31, 2015.  Sales for these 3 companies amounted to $2.136 billion in 2013, with EBITDA of $436 million (20% margin). These companies offer innovative farmer-focused solutions, for high-value niche crops such as fruits, vegetables, nuts, honeybees etc. This vertical will have a presence in 100+ countries,  with 65% of sales in high-growth markets. This vertical will have a 1,300 person sales and marketing team, and fits well with the “Asset-lite, high-touch” business model.

 

The Agricultural vertical has attractive industry fundamentals, because global arable land is decreasing every year, while the global population is increasing. Additionally, as wealth increases, the demand for higher value crops such as fruits, vegetables, nuts and even flowers, increases. Farmers are always trying to increase production, and that can only be achieved by increases in yield. And all of PAH AgroSolution products help them achieve better yield.

 

3) They are building the business the right way, by keeping management talent. The companies acquired have experienced management teams with a record of success. Wayne Hewett from Arysta will be the President of the AgroSolutions division of PAH. Wayne is an ex-GE executive, and has built up Arysta from sales of about $1billion in 2009 to over $1.5 billion in 2013. Presumably, profitability has increased as well, since the EBITDA margin of Arysta is approx 19%. The Agriphar founding family will remain in place and presumably the Chemtura senior management teams are all staying. Dan Leever (age 65) as CEO has decades of experience in attracting and retaining talent. 

 

So the building of the first vertical seems to be proceeding well, and they are executing on their strategy of acquiring “asset-lite, hi touch” businesses.

 

So what is something interesting in the “purchase terms” of these acquisitions?  It is that ALL of the sellers have requested, and accepted, shares of PAH as part of the transaction.  Dan Leever converted all his holding in MacDermid into PAH shares, and holds about 8,347,228 shares with a value of about $200 million. He will also receive more shares after a 7 year period based on share price metrics that have not been disclosed. The Agriphar owners have received about 711,511 shares worth about $17 million. The Chemtura company received 2 million shares (worth about $50 million at closing) as part of the Chemtura AgroSolutions acquisition. I believe they will hold it for 2 years. And finally, the Arysta LifesScience sellers will receive $600 million in a convertible note that can be converted to about 22 million shares after 2 years. In my estimation this indicates confidence by the sellers that the company has the right strategy, and, is likely to do well, and so they want to participate in the upside.

 

So who are the significant owners in addition to Martin Frankin, Nicholas Berggruen and Bill Ackman? We have Tiger cub John Griffin (Blue Ridge with 9 million shares) and Horizon Kinetics (6.1 million shares). There are others as well. In addition to Bill Ackman’s purchase of over 9,000,000 shares at $25.59, Stan O’Neal of Merrill Lynch fame who is a Director of PAH) has recently spent about $2 million to purchase over 70,000 shares at around $26, and increased his holdings to over 250,000 shares.

 

Based on my back-of-the-envelope calculations, the company has about 193 million shares outstanding, with a market value (@ $24.00) of $4.6 billion. I expect they will hold debt of about $2.7 billion, after the closing of the Arysta acquisition. This will give them an EV of about $7.1 billion. They have paid $6.8 billion for all the 4 acquisitions, and so the whole company is currently valued at the acquisition price. Perhaps rightly so, as it is still a “show-me” story. But these are all existing businesses, with decent track records, run by good managements with superior market positions. When all these ingredients are present, good things generally happen. They have publicly stated that the AgroSolutions business will be showing growth in Revenues and EBITDA in 2015. So 2015 should be a good year for PAH. So, how much that growth be? And what is that growth worth?

 

In summary, I think of PAH as a good business at a fair price, rather than a fair business at a good price (with credit to W.E.B for stating it so well).

 

Disclosure: I own shares in this company. Do your own diligence and homework if this idea interests you, before buying, or selling.

 

Based on my back-of-the-envelope calculations, the company has about 193 million shares outstanding, with a market value (@ $24.00) of $4.6 billion. I expect they will hold debt of about $2.7 billion, after the closing of the Arysta acquisition. This will give them an EV of about $7.1 billion. They have paid $6.8 billion for all the 4 acquisitions, and so the whole company is currently valued at the acquisition price. Perhaps rightly so, as it is still a “show-me” story. But these are all existing businesses, with decent track records, run by good managements with superior market positions. When all these ingredients are present, good things generally happen. They have publicly stated that the AgroSolutions business will be showing growth in Revenues and EBITDA in 2015. So 2015 should be a good year for PAH. So, how much that growth be? And what is that growth worth?

 

In summary, I think of PAH as a good business at a fair price, rather than a fair business at a good price (with credit to W.E.B for stating it so well).

 

Disclosure: I own shares in this company. Do your own diligence and homework if this idea interests you, before buying, or selling.

 

[CorpRaider]

You've got a little typo/dupliation at the end of your good post.  I've got this in my watch list with a $19 target to get more serious.

[Liberty]

Good post PhatKing, thanks.

 

What do you think of Franklin's compensation? I remember that when I first looked at the company it rubbed me the wrong way. Maybe I need to look again (a lot has changed since then) and see if I can get passed it.

[jch548]

A few petro-chemical companies have been hit with the oil sell off. LYB and WLK are a couple I've looked at recently. Both are in the plastics end of things.

 

WLK has a very strong record. Tripled ebitda in six years. Benefitted from the increased ngl supply made acquisitions and built up their facilities. Excellent balance sheet with no net debt. They recently made an acquisition in I believe France. Their first in Europe. Westlake will continue to expand with surplus funds etc.

 

Just industry related stuff....

[PhatKing]

Thanks, and apologies for the duplication – I don’t post often, and so can get a bit klutzy :)

 

Yes, the founder preferred shares (benefiting Franklin and Nicholas) are quite egregious. And I don’t like it at all. But the way I thought  about it is that this compensation is akin to a private equity/ hedge fund structure …. the notorious 2% and 20% fee structure. So they will benefit on the upside of any share price appreciation (the 20% part!). And indeed they get  $18,105,800 per $1 common stock price appreciation for that year. It is calculated and paid out, at the end of the calendar year, and so this year they may get over 11,000,000 shares !!!!!.  But if you participated in the full upside from $15 to today, then you got over a 50% upside as well. If there is no price appreciation, then they get nothing as well. But yes, it is ridiculously high, especially, for a public company. But perhaps not so much when seen thru the “hedge-fund” investor lens :) :) Other such examples are  Blackstone, Carlyle, Apollo and the like. They have made fortunes for themselves, but not so much for their public investors. So such feeding at the “trough of price appreciation” is an industry feature. FWIW, even WEB took 25% of the price appreciation in his money management business :)

 

[Liberty]

Thanks, and apologies for the duplication – I don’t post often, and so can get a bit klutzy :)

 

Yes, the founder preferred shares (benefiting Franklin and Nicholas) are quite egregious. And I don’t like it at all. But the way I thought  about it is that this compensation is akin to a private equity/ hedge fund structure …. the notorious 2% and 20% fee structure. So they will benefit on the upside of any share price appreciation (the 20% part!). And indeed they get  $18,105,800 per $1 common stock price appreciation for that year. It is calculated and paid out, at the end of the calendar year, and so this year they may get over 11,000,000 shares !!!!!.  But if you participated in the full upside from $15 to today, then you got over a 50% upside as well. If there is no price appreciation, then they get nothing as well. But yes, it is ridiculously high, especially, for a public company. But perhaps not so much when seen thru the “hedge-fund” investor lens :) :) Other such examples are  Blackstone, Carlyle, Apollo and the like. They have made fortunes for themselves, but not so much for their public investors. So such feeding at the “trough of price appreciation” is an industry feature. FWIW, even WEB took 25% of the price appreciation in his money management business :)

 

Thanks.

 

It just seems excessive, especially since they also get salaries and own millions of shares. What happened to getting the upside from the shares they own if the business does well? Is that too old fashioned?

 

It just seems like they're putting themselves way above other shareholders. I can kind of understand getting paid to run a fund when that's your main source of compensation... But I think Buffett would have received a lot of flak if he had tried to do a similar thing at Berkshire, paying himself a salary, being a major shareholder, and on top of that taking a big slice of profits. Makes it hard for me to trust management to have my interests at heart...

[saltybit]

Seems kind of promotional... a form 4 would be enough for most people:

 

http://ir.platformspecialtyproducts.com/releasedetail.cfm?ReleaseID=888355

[giofranchi]

Another good deal by Franklin?

 

http://www.nytimes.com/2015/07/14/business/dealbook/platform-specialty-products-alent.html?smid=tw-dealbook&seid=auto&_r=0

 

Cheers,

 

Gio

[Phaceliacapital]

14x EBITDA...

 

Thank god there is "platform value" ...

[giofranchi]

Cevian Capital, Alent’s largest shareholder, has agreed to accept shares in the combined company up to the full size of its interest in Alent, which is about 21.9 percent of the company. Cevian has also agreed to vote in favor of the deal.

 

Cevian Capital playing Ackman's strategy? ;)

 

Gio

[giofranchi]

http://www.valuewalk.com/2015/07/bill-ackman-mergers/?utm_campaign=trueAnthem%3A+Trending+Content&utm_content=55a5081604d3012f11000001&utm_medium=trueAnthem&utm_source=twitter

 

Cheers,

 

Gio

[PB]

Anyone have an idea on total shares outstanding after all the recent announcements

[muscleman]

Does anyone know the valuation of PAH? How much is the current assets worth? I am not familiar with specialty chemical's moat. Is  this a capex intensive business?