As the private equity industry increasingly chases clean and green assets, a recent transaction appears instructive. One Equity Partners’ Joseph Huffsmith tells us his firm’s recent acquisition of Norit Activated Carbon from Cabot offers organic and inorganic growth opportunities.
Cabot’s purification solutions unit makes activated carbon used to treat water, food, pharmaceuticals and beverages.
“For us, activated carbon is an interesting market to be in; its versatile, cost-efficient purification of air and water,” Huffsmith says. “As far as five years ago, we started talking to companies in the space trying to find a way to participate.”
The unit, then known as Cabot’s purified solutions segment, ticked all One Equity Partners’ boxes. Norit’s near 100-year history in the activated carbon market gives it specialized knowledge of several applications. And as a standalone operating segment in a conglomerate, Norit had “non-core” written all over it—recent margin improvement is partially the result of a cost savings plan. Revenue was basically flat year over year, but earnings before interest and taxes more than trebled to $10 million in the fiscal year ending September 2021.
Add a fragmented market, myriad activated carbon source materials, and as many applications, and the ‘buy and build’ narrative writes itself.
“On the organic side, we’re looking at a very big, diversified, and growing market. You’re helping customers get to clean air and water so there is good organic growth opportunity here,” says Huffsmith. “We’ll support the team to take care of the customers they have, but also to develop a more commercial capability to think about how else we can help customers solve problems.”
Geographic and application expansion could be strong rationales for bolt-ons, he reasoned.
The deal clocks in at $111 million, representing over 11x purification solutions’ 2021 EBIT. The bold bet on cleaning air and water comes as the activated carbon market is projected to grow at a compound annual growth rate of approximately 9 percent.
–Brandon Zero
