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Basic Materials Bounces Back

In this age of online shopping, social media and i-everything, it can be easy to forget that the digital world is but a small piece of the economic pie, especially when it comes to the new issuance market. Companies that make their bones on the internet and on mobile devices – such as Facebook, Twitter, even Alibaba – may grab more headlines, but they’re not the only game in town.

Case in point? The Basic Materials sector. The Basic Materials sector is comprised of companies involved in the discovery, development and processing of raw materials, which includes the mining and refining of metals, chemical producers and forestry products. Over the past few years, basic materials IPOs have been on an upswing, both in terms of the quantity of the deals and their quality.

Since 2011, the basic materials sector is averaging over 5 deals a year, with proceeds averaging more than $1.4B per deal, heights not seen since before the downturn and which, even then, were not exactly commonplace. None of the previous four years (2011 until now) has seen fewer than four basic materials IPOs hit the market, and all four years have totaled over $1B (and there’s still time left in 2014). In fact, if you’re willing to overlook 2008 (and I bet you are), you’d have to go back to 2003 before the basic materials deal count dips below three a year (though those years did see some less than stellar proceeds totals.)

Leading the way in 2014 is Axalta Coating Systems Ltd., the auto coating arm of DuPont, which was spun off into its own IPO and subsequently debuted as the second-largest basic materials IPO ever (behind Huntsman Corp in 2005). The economy seems to be bouncing back, and with it, the auto industry, which may help explain Axalta’s robust performance. However, the auto coating industry, which resides within the basic materials space, moves in lockstep with the auto market, so if a weak Auto Sales number is released, these companies will likely suffer. Here’s hoping they don’t.

Basic materials may not be as sexy as iPhones and drone-based delivery services and micro-blogging networks, but they’re an essential part of the global economy just the same. And one that has been on the rise.

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