Chemicals and Specialty Materials Industry Update
Introduction
Harris Williams is pleased to present its chemicals and specialty materials industry update for April 2019. This report provides commentary and analysis on current market trends and merger and acquisition dynamics within the global chemicals and specialty materials industry.
With concerns over the inevitable (although we think likely benign and short-lived) M&A market pullback looming, it is no surprise that many financial and strategic buyers are prioritizing sector resilience as they weigh new investments.
In the case of chemicals and specialty materials, this thinking has resulted in clear winners and losers from an end market perspective, with automotive, oil & gas, and textiles facing considerable scrutiny, while aerospace, electronics, personal care, and food ingredients, among other markets, continue to see see outsized interest, and in turn purchase multiples.
We believe that while much of this cycle-avoidance mentality is warranted, there will continue to be healthy activity across a wide range of chemicals and specialty materials sub-sectors for the balance of 2019, with particular upside for those willing to separate from
the herd.
We hope you find this edition helpful and encourage you to contact us if you would like to discuss our perspective or our relevant industry experience.
Q1 2019 By the Numbers1,2
2.5% | Year-over-year increase in U.S. Producer Price Index for Chemicals Manufacturing
+13% | S&P 1500 Specialty Chemicals Year-Over-Year Increase
Our Practice
Harris Williams is a leading advisor to the chemicals and specialty materials industry. Our significant experience covers a broad range of business models, market segments, and applications.
Business Types
- Manufacturers
- Distributors
- Outsourced Solutions
- Other Service Providers
End Markets
- Aerospace
- Agricultural
- Automotive
- Consumer
- Industrial
- Life Sciences
- Oil & Gas
- Other
Applications
- Adhesives, Sealants, & Elastomers
- Aerosols
- Cleaning & Preparation
- Films
- Paints & Coatings
- Water Treatment
- Other
What We’re Reading
Private Equity Diversifies the Portfolio3
Chemical Week 4/1/2019
"Private equity investors in chemicals are growing more numerous, and more sophisticated. In 2018, about 23% of chemicals M&A volume and 34% of M&A value was in deals in which private equity firms were involved, either as buyers or sellers of assets, according to Chemical Week data. This represents a big increase from 2017, when the figures were 12% and 9%, respectively; and 2016, when they were 14% and 7%.
Private equity has had some notable successes in the sector. Axalta, the former performance coatings business of DuPont, was acquired by The Carlyle Group in 2013 for $4.9 billion. Less than two years later, Carlyle sold a 24% stake in the company in an IPO, raising $975 million. The firm sold down its stake over the course of two years, raising billions with a series of public share offerings."
Read the full article here.
A Different Dow Emerges Following Merger with DuPont4
Wall Street Journal 4/1/2019
"Dow Inc. will begin trading on the New York Stock Exchange, after completing its spinoff from conglomerate DowDuPont Inc. Less than two years after Dow Chemical Co. and DuPont Co. shook up the chemical industry with a blockbuster merger valued at more than $120 billion, the combined company is in the process of breaking into three. Corteva Agriscience is expected to become a separate company in June and will focus on pesticides and other agricultural products. DuPont will also spin out in June as a specialty chemicals company.
The new Dow, as it is being branded, is a more focused version of its predecessor. It will be entirely focused on material sciences, like plastics and silicones, and is expected to generate more than $9 billion in earnings this year, before interest, taxes, depreciation and amortization."
Read the full article here.
Saudi Aramco to Buy Majority Stake in Petrochemicals Producer Sabic for $69.1 Billion4
Wall Street Journal 3/27/2019
"Saudi Arabia’s national oil company, Aramco, has agreed to buy a 70% stake in Saudi Basic Industries Corp., the kingdom’s petrochemicals firm, for $69.1 billion, giving Crown Prince Mohammed bin Salman’s agenda a massive jolt of cash.
The deal would join the country’s two largest companies. In doing so, the deal will hand the Saudi sovereign-wealth fund, Sabic’s current owner, roughly the same amount of money it had expected to reap from an initial public offering for Aramco."
Read the full article here.
Linde Begins Merger Integration After Final Divestments3
Chemical Week 3/18/2019
"Linde plc has started post-merger business integration following the March 1st divestiture of assets required by the U.S. Federal Trade Commission (FTC). Linde and Praxair closed their merger on October 31st, 2018. The company, which will operate as Linde, was required to hold Linde and Praxair as separate, independent companies until required divestitures were completed.
The combined company, excluding completed and pending divestitures, posted adjusted 2018 sales of $28.1 billion and net income of $3.4 billion, year-on-year gains of 5% and 8%, respectively. The deal creates the largest global industrial gases player, taking the lead from Air Liquide."
Read the full article here.
Evonik Unit Sale, Prospect of Cash-Flow Gains Boost Shares5
Reuters 3/5/2019
"Evonik has agreed to the sale of its methacrylates plastics unit to buyout group Advent for an enterprise value of €3 billion ($3.4 billion) - comfortably more than the €2-2.5 billion that had been expected.
“Divesting a commodity business for 10 times EV/EBITDA at this point in the cycle is impressive,” said Bernstein analyst Gunther Zechmann, citing expected 2019 earnings before interest, tax, depreciation and amortization (EBITDA) for the unit of €279 million."
Read the full article here.
Public Markets Overview6
Chemicals and Specialty Materials Trading Statistics
As of April 23, 2019 (TEV / NTM EBITDA)
Chemicals and Specialty Materials Index (12-Month Performance)
Growing optimism around trade talks between the U.S. and China as well as increasing investment in the chemicals sector have led to a steady rebound in the first quarter of 2019
HW Commentary
- Chemicals and specialty materials public companies are currently trading at an overall median of 9.3x NTM EBITDA
- In the wake of rising raw material and freight costs, chemicals companies have focused intently on enacting price increases to claw back margin
- Global chemical producers have shifted their supply chains to serve certain geographies differently in light of the ongoing trade conversations between the U.S. and China
- Disparity in share price performance between specialty and commodity chemicals companies has become more pronounced in 2019
Transactions6,7
Harris Williams Deal Spotlight
NSC Minerals
Harris Williams advised NSC Minerals Ltd. (NSC), a portfolio company of Altas Partners (Altas), on its sale to Kissner Group Holdings LP (Kissner), which is owned by Metalmark Capital, Silvertree-KMC II LP, and the Kissner management team. The transaction was led by Tim Webb and Ty Denoncourt of the firm’s Chemicals and Specialty Materials practice.
NSC is a leading producer of salt and calcium chloride products to provincial, state, and municipal governments, contractors, and industrial customers. The company offers a wide range of bulk, industrial, and packaged products used in critical applications such as road de-icing.
“We love working with great companies like NSC with its market-leading position, superior customer-service and strong management team,” said Tim Webb, a managing director at Harris Williams. “Kissner will be a great strategic partner for the business as it continues to grow.”
Press Releases
Recent Chemicals and Specialty Materials Transactions
1. Bureau of Labor Statistics
2. S&P
3. Chemical Week
4. Wall Street Journal
5. Reuters
6. Factset
7. Mergermarket
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