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Summary

  • TSE, a manufacturer and marketer of specialty emulsion polymers and plastics, plans to raise $180.0 million in its upcoming IPO.
  • Despite a strong market presence, TSE did not turn a profit in calendar 2013 and has significant debt levels.
  • We recommend investors consider waiting on this IPO.

Trinseo S.A. (NYSE:TSE), a manufacturer and marketer of specialty emulsion polymers and plastics, plans to raise $180.0 million in its upcoming IPO.

The Berwyn, Pennsylvania-based firm will offer 10.0 million shares, at an expected price range of $17-$19 per share. If the IPO can reach the midpoint of that range at $18 per share, TSE will command a market value of $855 million.

Filing and Underwriting

TSE filed on March 14, 2014.

Lead Underwriters: Citigroup Global Markets Inc; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; Morgan Stanley & Co. LLC

Underwriters: Barclays Capital Inc; BofA Merrill Lynch; HSBC Securities (USA) Inc.; Jefferies LLC; Mizuho Securities USA Inc; Scotia Capital Markets; SMBC Nikko Securities America, Inc; Wells Fargo Securities, LLC

Summary

TSE is a manufacturer and marketer of specialty emulsion polymers and plastics that are incorporated into a wide variety of products worldwide, including tires, carpet, food packaging, medical devices, electronics, and much more. The firm formed after entities affiliated with private equity firm Bain Capital Partners acquired The Dow Chemical Company's Styron Division in 2010.

TSE's operations are spread worldwide, allowing the firm to serve an extremely broad customer base, with manufacturing locations in high growth markets like Brazil, Indonesia and China. The firm had a total of 35 manufacturing plants across 14 countries as of March 31, 2014. As of the same date, TSE operated 11 R&D facilities worldwide.

TSE divides its business into four reporting segments: Latex, Synthetic Rubber, Styrenics, and Engineered Polymers. The Latex segment holds the #1 market position in styrene-butadiene (SB) latex in Europe and the #2 position in the U.S.; SB latex is primarily used for coated paper, packaging coating, and carpet and turf backings.

The Synthetic Rubber Segment holds a leading market position in Europe, where the firm's rubbers are used in fuel-efficient low rolling resistance tires, and expects to expand into Japan and Korea where reforms have created demand for similar tires. The Styrenics segment produces various products including materials for liners for appliances and consumer electronics, as well as producing raw materials for its own SB latex. Finally, the Engineered Polymers segment produces polycarbonate compounds and blends used in the automotive, construction, electronics, and medical device markets.

Valuation

TSE offers the following figures in its S-1 balance sheet for the three months ended March 31, 2014:

Revenue: $1,359,132,000.00

Net Income: $17,086,000.00

Total Assets: $2,594,052,000.00

Total Liabilities: $2,232,256,000.00

Stockholders' Equity: $361,796,000.00

For the year ended December 31, 2013, TSE posted net sales of $5.3 billion and a net loss of $22.2 million.

Overview of Competitors, Fluctuating Industry, Significant Debt Levels

TSE faces competition from numerous other materials firms, some of which may have superior technical or financial resources to TSE.

Fluctuating prices in raw materials also have significant impacts on TSE's strength relative to its competitors, as many use differing chemical processes requiring different materials to produce competing products.

Major competitors include BASF Group (OTCQX:BASFY), LG Chem Ltd., Zeon Corporation (OTC:LGCEY), Wacker Chemie AG (OTC:WKCMF), Lanxess AG (OTCPK:LNXSF), Bayer MaterialScience AG (OTCPK:BAYRY), Saudi Basic Industries Corporation, Total S.a. (NYSE: TOT)] Styrolution Group GmbH, and Versalis S.p.A.

It should be noted that TSE is significantly indebted; the firm placed its level of indebtedness at approximately $1.3 billion as of March 31, 2014. Though much of the proceeds from the IPO will be put towards retiring debt, TSE will still have a total debt of over $1.0 billion after the completion of the offering.

Management Highlights

President and CEO Christopher D. Pappas has held his current positions since June 2010. He previously served in various executive roles with NOVA Chemicals, including President and CEO of NOVA Chemicals, President & COO, and Vice President and President of Styrenics.

He also served as Commercial Vice President of DuPont Dow Elastomers. Mr. Pappas worked in various sales and management positions with Dow from 1978 until 1995. Mr. Pappas is a member of the Board of Directors of FirstEnergy Corp (FE).

Conclusion: Considering Waiting

We are neutral on this IPO.

TSE boasts solid underwriters, an impressive market presence, and should continue to see substantial growth opportunities as global manufacturing demands more custom materials. The firm's geographically diverse manufacturing locations should also assist in taking advantage of those opportunities.

That said, the firm did not turn a profit in calendar 2013, and we find its heavy indebtedness concerning.

TSE is a powerhouse in its own right, but its competitors are not to be discounted, especially given the industry's potential for shifts based on raw materials pricing.

We suggest investors wait on TSE's IPO.

Source: IPO For Trinseo S.A.: Strong Market Presence, Worrying Levels Of Debt