30K Feet: Key Takeaways from Specialty & Custom Chemicals America

Harris Williams professionals regularly attend industry conferences and events. On the flight home, they share three key takeaways to help shape your priorities.

Event: Specialty & Custom Chemicals America

Report by: Patrick McNulty, managing director; John Lautemann, director; and Ty Denoncourt, vice president; all of the Harris Williams Industrial Group

Why is this an important event for professionals active in this industry?

Lautemann: There are a vast number of subsectors within the chemical and specialty materials industry, and many industry events are narrowly focused on one or a few of them. Specialty & Custom Chemicals America offers perhaps the best networking opportunities for professionals interested in a range of end markets and applications across specialty chemicals.

Which trends, companies or business models were top of mind at the event?

Lautemann: It was clear from the show that the specialty chemicals industry continues to attract increasing private equity interest, particularly given late-stage cycle dynamics. Quality specialty chemicals businesses typically offer diverse revenue streams and end markets, sticky customer relationships, and rational competition, all of which support stability across economic cycles. That’s increasingly important to investors at this point in the cycle.Specialty & Custom Chemicals America
Denoncourt: Our discussions also reinforced the fact that both strategic buyers and private equity investors are becoming more narrowly focused on key subsectors. Two to three years ago, we were seeing fairly broad interest from most buyers. Today, more groups are developing targeted theses and seeking spots on shortlists of high-potential buyers for their preferred assets. 
McNulty: For large corporate buyers, this is part of a continuing theme. We’ve seen elevated divestiture activity over the past 18 months, as diversified companies shed non-core assets and focus on higher-value chemistries and services. For private equity groups, this trend manifests itself in greater use of industry executives with deep expertise in a given subsector (e.g., coatings, water treatment, ingredients, etc.) and early, proactive outreach to assets of particular interest.

What opportunities are these dynamics creating for strategic buyers and private equity investors?

McNulty: After an active year for Harris Williams across chemicals and specialty materials—we recently advised DuBois Chemicals on its sale to Altas Partners, and announced the pending sale of Kissner Group Holdings to Stone Canyon Industries—we anticipate another active year for M&A in 2020, despite uncertainty related to the coronavirus and the election in the U.S.

Lautemann: Specifically, we anticipate that corporate carve-out activity will remain elevated and that a broader group of private equity groups will join in the pursuit of those assets. We also see stronger interest in subsectors such as flavors and fragrances, specialty coating and adhesives, distribution, electronics, and we expect multiples in those segments to remain at or near all-time highs. As a result, owners of businesses in these sectors and others will be under some pressure to consider shorter holds given such supportive conditions.

Published March 2020