Many changes are afoot at distressed investor Wilbur Ross (Trades, Portfolio) Jr.’s firm as its holding corporation merges with a chemicals company and draws big investors.
Ross, chairman of WL Ross Holding Corp. (WLRH, Financial), announced March 21 that it agreed to acquire Nexeo Solutions, the No. 1 plastics distributor and No. 3 chemicals distributor by revenue in North America, from a private equity firm. As part of the transaction, WL Ross Holding will change its name to Nexeo Solutions, the company will commence trading on the NASDAQ and Wilbur Ross (Trades, Portfolio) will become chairman of the board.
WL Ross Holding Corp. existed to engage in a transaction such as a merger, acquisition or reorganization of one or more companies and began publicly trading in 2014. The company’s officers and some directors are affiliated with WL Ross & Co., a global value-oriented private equity firm founded in 2000.
"Over the last two years, we have evaluated a number of potential acquisitions for WLRH and we believe this opportunity offers a superior option for our shareholders,” Ross said.
“Nexeo Solutions presents a unique opportunity to invest in an industry-leading company supported by strong business fundamentals and long-term structural growth trends. Additionally, we believe the company is an ideal platform to further roll up the fragmented chemicals and plastics distribution space, creating significant value for shareholders."
Ross is buying Nexeo for $1.65 billion, consisting of up to 35 million common shares of WL Ross valued at $10 per share and $1.3 billion in cash and assumed net debt. The total values the company at a multiple of 8.4 times its estimated adjusted EBITDA for 2016.
The boards of both companies unanimously approved the transaction, expected to close in the second quarter 2016.
Three days after the announcement, WL Ross Holding Corp. said Los Angeles-based value firm First Pacific Advisers, whose portfolio managers include guru Steven Romick (Trades, Portfolio), would invest $182.6 million in the company for 18.26 million shares at $10 per share, once the acquisition closed. First Pacific’s private placement gives it a roughly 20% stake in the new company, though it will not add board members.
FPA’s investment also closes the company’s raising of $225 million in private placement equity capital that began May 9.
Nexeo globally distributes products used in household, industrial, health care and other markets. It operates in three segments: chemicals, plastics and environmental services. Its most significant headwind, according to its most recent quarterly filing, is a drop in the price of crude oil and natural gas.
Low oil and gas prices contributed to lower sales and sale prices, which brought first-quarter revenue down 14.9% year over year to $862.2 million. The company’s revenue also dipped on an annual basis as all segments posted declines, down 12.5% in 2015 to $3.95 billion, led by a 14.7% decline in its chemicals segment. The decline in sales was not part of a trend but a short-term development, as revenue from 2013 to 2014 rose grew 10.1% to $4.2 billion, with a 13.4% uptick in chemicals and a gross profit margin of 26% for the segment.
Nexeo’s next largest competitor, Univar (UNVR, Financial), made $10.4 billion in revenues in 2014, which dropped to $8.98 billion for 2015. Its shares trade publicly and gained 11% year to date.
Nexeo as of Sept. 31 had $127.7 million in cash and long-term debt of $863.5 million on its balance sheet.
Wilbur Ross (Trades, Portfolio) deals primarily with distressed companies and bankruptcies, and his public equity portfolio focuses on concentrated, long-term positions. At the end of the first quarter, a 21.9 million-share stake in Navigator Holdings Ltd. (NVGS, Financial) dominated 62.9% of his portfolio, followed in size by two banks, Sun Bancorp (SNBC, Financial) and Cascade Bancorp (CACB, Financial).
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