FCF at 3rd European Chemistry Partnering

“STRATEGIC FINANCE IN LIFE SCIENCES & CHEMISTRY”

Workshop Summary
The workshop provided an in-depth insight into the various financing opportunities, from early stage venture
financing to bank debt financing, available to companies in the chemical and life science industries.
Financing trends, transactions and investors in Venture Capital, Growth Capital, Private Equity and IPOs
were introduced. Finance models in the life sciences were compared to those in chemistry with special
emphasis on the situation in Germany which, in a European comparison, is depressing.

Take home messages
• The chemical sector is totally underrepresented in the venture world.
• Compared to financing in the life sciences the chemical sector is 10 to 15 years behind.
• Many investors come from outside Germany. Cross-border transactions are increasing.
• Instead of presenting investors with a technological story companies would be better advised to
explain how they intend to make money.

Report
Since its foundation in 2005, FCF Fox Corporate Finance GmbH has brokered over 100 transactions with a
total placement volume in excess of EUR 4 billion. “We work with all investors. You should know all of them,”
stressed Arno Fuchs, founder and CEO of FCF, at the outset of the workshop. Through his network he has
access to more than 4000 international financial institutions as well as to 2000 family offices and ultra-high
net worth individuals worldwide.

Fuchs understands the special requirements of the chemical industry where innovation cycles can last 10 to
15 years – institutional investors from the venture or private equity world usually do not have that much
patience, at least not for small and medium-sized companies. “Family office investors are long-term oriented
and can be ideal partners,” says Fuchs.

Too little venture capital in the chemical industry

A comparison between venture capital (VC) financing in the chemical sector with that in the life sciences
reveals dramatic differences. “The chemical sector is totally underrepresented in the venture world,” said Fuchs, and went on to quote a few figures: In Europe there are 792 VC-backed life science companies, but
only 132 VC-backed chemical companies. In Germany there are 60 VC-backed life science companies but
by comparison only 9 VC-backed chemical companies and the average volume of a chemical VC deal in
Germany is 2.1 million Euro compared to 14.8 million Euro in the life sciences (over the last five years).

There was not a single German company among the European top 10 VC chemical deals during the past
five years. However, a look at Europe’s top 10 growth or expansion deals at least shows German paint
manufacturer Oskar Nolte at number 5. Why do German companies perform so badly? “German
entrepreneurs think they can do it on their own,” explained Fuchs, but did not rate this attitude entirely
negatively. Rather, he explained, it forms the basis for the solid German mid-sized sector (Mittelstand).
Anyone looking for an investor should heed Fuchs’ tips: Instead of presenting technological stories, tell them
how you intend to make money! And: Don’t stay local! Cross-border transactions are also becoming
increasingly important in the chemical industry.

Growing with institutional investors

Institutional providers like the European Investment Bank (EIB) might be interesting partners for venture dept
financing. As case study Fuchs mentioned the German company Biofrontera AG which FCF advised on a 20
million Euro growth finance facility with the EIB. As German case studies for initial public offerings Fuchs
referred to the stories of B.R.A.I.N., Covestro and IBU-tec. However, with only twelve IPOs over the last five
years the European Chemical IPO market shows low activity.

The mid-market German chemistry sector has nevertheless been strong in terms of financing via Private
Equity and Mergers & Acquisitions (M&A) over the past five years: The German company Atotech, acquired
by Carlyle in 2017, was the largest chemical Private Equity deal in Europe, and the M&A transaction of
Praxair (acquired by Taiyo Nippon Sanso in 2018) heads the league table of the largest Chemical M&A
deals, followed by the acquisition of Chemetall by BASF in the same year. Apart from that the German
chemical sector needs to catch up. The workshop showed that there is still room for improvement when it
comes to financing, not only with a view to the life science sector, but also in a European comparison.

Background
97 percent of all products contain at least one chemical process step: renewable raw materials, enzymes,
industrial biotechnology, new processes, products from residual materials, digitization, etc. are changing the
processes in chemical value creation: starting with purchasing logistics on to production and finally marketing
and sales. Interdisciplinary exchange is gaining in importance. With the ECP, an international chemistry
community is growing that wants to derive more innovation from what already exists.