Is the second time the charm? PQ Group Holdings, a sprawling company that produces a wide range of inorganic chemicals, undoubtedly hopes so. It's about to launch an IPO, not long after it withdrew its first attempt in 2014.
This issue is a big one that could gross the company as much as $667 million. Here's a brief look at the IPO, and the company's operations.
A catalyst on the market
PQ Group describes itself as "a leading global provider of catalysts, specialty materials and chemicals, and services that enable environmental improvements, enhance consumer products, and increase personal safety." Its concoctions are used in such varied finished goods as automobiles, makeup, and cooking oil.
As of June, it had 72 factories around the globe and provided its wares to more than 4,000 customers. Sixty-one percent of its sales came from the U.S., with 20% from Europe and 9% in Asia. In terms of sales by product, the company manages to spread the wealth around -- of its six product categories, its top five ranged within 16% to 21% in terms of percentage of total sales.
Although its roots go back to the 19th century, the current form of the company is relatively recent. Most of its stock is owned by affiliates of private-equity operator CCMP Capital Advisors, which holds just over 58%. U.K.-based chemicals multinational INEOS owns nearly 31%.
Those figures will drop to 43.5% and slightly more than 23%, respectively, after the IPO. Yet those two entities "will continue to have significant influence over us and will be able to strongly influence or effectively control our business and affairs," PQ Group admits.
The current form of PQ Group booked just over $1 billion in sales in 2016, while attributable net loss was almost $80 million. Much of the reason for the latter was the interest expense on the company's sizable debt, which stood at just under $2.6 billion at the end of June.
PQ Group will offer 29 million shares of stock in the IPO, at a price of $21 to $23 per share. Starting on Friday Sept. 29, the company is expected to be listed on the New York Stock Exchange under the ticker symbol PQG. page 1 The lead managers of the underwriting syndicate are Morgan Stanley, Goldman Sachs, Citigroup, and Credit Suisse.
Is PQ Group worth a closer look?
PQ Group is in better operational shape than its net loss indicates; its adjusted EBITDA for 2016 was almost $332 million, for a healthy EBITDA margin of 31%. The company writes that its goods, basically consisting of performance chemicals and materials and catalysts, "typically constitute a small portion of our customers' overall end-product costs yet are critical to product performance."
That's a compelling business profile, but PQ Group isn't the only horse in this race.
It admits that in the performance materials and chemicals sphere it faces global competition from other producers, specifically naming PPG (NYSE:PPG) and Occidental Petroleum's (NYSE:OXY) OxyChem and Germany's Evonik. As for catalysts, PQ Group competes against companies such as BASF and W.R. Grace (NYSE:GRA), among others.
These aren't small niche players -- PPG, for instance, has a $28 billion market cap, compared with PQ Group's estimated post-IPO size of $2.8 billion, and its operations span the globe. BASF, Grace, and Occidental's unit are also active worldwide. And Grace is hardly a small fry -- it weighs in at nearly $5 billion. Finally, BASF, Grace, and OxyChem have landed consistently in the black over the past few years.
Meanwhile, as an investor, I wouldn't be comfortable with PQ Group's ownership structure. Being steered by a private-equity firm and an industry peer isn't necessarily a negative, of course. But in my view, companies perform better when they're masters of their own destiny.
Ultimately, then, I'd probably give PQ Group's shares a miss for now.