Bain Nabs Styron for $1.63 Billion from Dow


It looked like private equity firm TPG would prevail in its bid for Styron, which is a division of Dow Chemical (DOW). But buyout auctions can get heated -- and this appears to be the case yet again.

Instead, Bain Capital made the winning bid, agreeing to pay $1.63 billion for the rubber and plastics manufacturer. The deal also gives Dow an option for 15% of the equity.

This transaction is part of Dow's efforts to unload non-core assets and bolster its balance sheet because of its $15 billion acquisition of Rohm and Haas. At the same time, this deal is another sign that private equity is starting to ramp up dealmaking.

Relationship with Dow Took Months to Untangle

Styron is a top plastics company with $3.5 billion in revenues, more than 40 manufacturing plants and 1,900 employees. The portfolio is diverse and includes polystyrene and latex products. Styron also has a strong global footprint and a customer base that spans many industries, such as autos, appliances, paper and board and so on.

However, this deal was not easy to pull off. Keep in mind that the selling process started in July 2009.

Why the problems? Basically, it was difficult to untangle the relationships between Styron and Dow. So there needed to be long-term supply, service and purchase agreements to allow for continuity. No doubt, such negotiations can be time consuming.

Of course, another big issue has been the sluggish economy. While Dow has not provided information on revenue trends, the results are likely to have been lackluster over the past couple years.

Dow's Financial Engineering

For Bain, the deal looks like a good one. The private equity firm will have the flexibility to focus the company and perhaps engage in bolt-on acquisitions. Interestingly enough, TPG had success with a similar deal: the purchase of Kraton Polymers (KRA) in 2003. The company recently went public late last year.

As for Dow, the Styron deal is also a positive. While the company would have liked a higher price, the valuation still looks reasonable in light of the economic environment. But more importantly, Dow will get a nice chunk of cash and have more time to focus on its high-margin business units, which should ramp up as the economy comes back.

The Styron transaction is also a reminder of the dealmaking skills of Dow's CEO, Andrew Liveris. After all, he was able to purchase Rohm and Haas in the midst of the financial crisis. And now he is delivering on getting a payoff from the deal, which seems to be on track so far.