Chemicals and Specialty Materials Update - April 2019

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