Solenis, a Delaware-based producer of specialty chemicals used in water-intensive industries, has been engaging with investment banks as it considers going public in 2025, five sources familiar with the situation said.

The company and its owner Platinum Equity have not formally launched a bake-off to firm up a syndicate of banks to help it with the IPO plans, the sources cautioned.

Two of the sources said these conversations are likely to lead to a formalized selection of banks to advise Solenis on its public offering and it can be expected to happen before the end of 2024. They noted that IPO preparation is usually a lengthy process.

In addition, typically, chemical sector IPOs have struggled in terms of investors receptivity, each of the sources said.

In 2017, water treatment solutions and services company Evoqua Water Technologies went public but lost half its value in its first year of trading. Last year, Xylem [NYSE:XYL] acquired Evoqua in an all-stock deal valued at approximately USD 7.5bn.

Last November, water infrastructure solutions co Shimmick [NASDAQ:SHIM] went public at USD 7 per share, below its announced USD 10-12 price range.

The company shares are down around 75% since then.

There is always an apprehension among sponsors looking to list their companies about equity investors dragging stocks down below peer trading levels after their companies go public, some sources said.

These sources also highlighted the example of The Carlyle Group and GIC-backed Nouryon, which made a preliminary shelf filing for an IPO a couple of years ago, and is also yet to come to market because of similar factors.

Nouryon is a provider of essential, sustainable solutions for manufacturing everyday products personal care, cleaning goods, paints and coatings, agriculture and food, pharmaceuticals, and building products.

Given the fact that Solenis is too large a company to be acquired, the best likely option for its owner is to take it public, sources said.

Crafting an equity story

Solenis has been focusing on integrating its last year’s acquisition of cleaning and hygiene products maker Diversey Holdings for an enterprise value of USD 4.26bn, to make its equity story more compelling.

The deal closed last July. Diversey reported 2022 EBITDA of around USD 330m, giving the deal an EV/EBITDA of 13.9x, according to analytics by this news service.

Solenis generates EBITDA of around USD 1.4bn, some of the sources pointed out. Assuming a 13x EV/EBITDA ratio, Solenis could have an enterprise value of USD 18.2bn. Some of the sources said the sponsor backer would be angling that public markets value the business at least a 13-14x EV/EBITDA multiple.

In order to promote its growth prospects to public investors, Solenis has been likely shying away from taking a hard look at the sale process of the H.I.G. Capital-owned USALCO, the Baltimore-based specialty chemicals company, which is a provider of water treatment solutions for municipal and commercial customers in the US, some of the sources said.

This news service reported last month USALCO sent out books to potential buyers earlier in the month as it explores a sale with initial bids expected to be collected in early June. USALCO has been conducting a targeted sale process, and it reached out to parties with a presence in the water treatment chemicals space, as reported.

Solenis would be one of the most logical buyers of USALCO, four sources noted. However, given the latter’s significant exposure to municipalities, which, while being a steady and non-volatile business, is not necessarily deemed to be growth-oriented, some of the sources said. Further, USALCO is likely to fetch a low double-digit multiple, and if Solenis were to acquire it for that, it would be hard for the company to justify to equity investors why it deserves a higher valuation in public markets, a sector advisor said.

While there are no direct comparable peers, water treatment and infection prevention systems provider Ecolab [NYSE:ECL] may be the closest comp. This news service has also identified BASF, Kemira [HEL:KEMIRA], Clariant [SWX:CLN], and Veoila [EPA:VIE] as possible competitors.

Two of the sources and the sector advisor said Solenis would like to comp itself to Ecolab, but it is unlikely to happen.

They noted Ecolab is more of an environmental services company with a sticky customer base and a big brand name. Ecolab is a provider of water, hygiene and infection prevention solutions and services, with customers in more than 170 countries, according to its website.

Solenis, on the other hand, does not have an identical profile to Ecolab, the sector advisor noted.

Valuation sweet spot

At the stock closing price of 19 June, the possible peers have a 2023 EV/EBITDA range between 25x for Ecolab and 5.9x for Veolia, with the average at 10.6x. An enterprise value of USD 20bn could be the sweet spot for the company as it would be higher than the Diversey deal and at a discounted valuation to Ecolab, according to analytics by this news service.

In 2021, Platinum Equity announced its acquisition of Solenis from Clayton, Dubilier & Rice and BASF [ETR:BASF] in a transaction that implied an enterprise value for Solenis of USD 5.25bn.

As part of the transaction, Solenis merged with Sigura Water, an existing Platinum Equity portfolio company the PE firm acquired in 2019, for a total combined transaction value of approximately USD 6.5bn.

The combined company is expected to generate approximately USD 3.5bn of revenue and serve a diverse range of customers around the world in consumer, industrial and pool water treatment markets, a press release said.

The Valence Group of Piper Sandler served as exclusive financial advisor to Platinum Equity. BofA Securities and Goldman Sachs are leading the debt financing for the acquisition.

Founded in 1907, Solenis is a global provider of innovative specialty chemicals and services for process, functional and water treatment applications to consumer and industrial markets.

Solenis and Platinum Equity did not respond to requests for comment.