Chemicals and Specialty Materials Industry Update
Introduction
Harris Williams is pleased to present its chemicals and specialty materials industry update for January 2019. This report provides commentary and analysis on current market trends and merger and acquisition dynamics within the global chemicals and specialty materials industry.
Heading into 2019, we expect deal activity in the sector to remain resilient despite growing questions about the staying power of the current (and nearly decade-long) expansionary M&A cycle. Fortunately, and more so for chemicals and specialty materials than many other sectors, market dynamics point to continued strength and attractive investment opportunities across economic cycles given the end market diversity, sticky customer relationships, and mission-critical solutions inherent in so much of the specialty segment of the industry.
Moreover, we expect healthy exit activity from both private equity and strategic sellers over the foreseeable future. After having recently announced our role as exclusive advisor to Whitford Worldwide in the company’s pending sale to PPG, our team continues to be very active with potential opportunities in the space.
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.
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
Upcoming Industry Event
Specialty & Custom Chemicals America
Harris Williams will be attending the 2019 Specialty & Custom Chemicals America conference February 12-14th at the Omni Fort Worth Hotel in Fort Worth, TX. We hope to see you in attendance.
What We’re Reading
2019: A Look Ahead1
Chemical Week 1/7/2019
The U.S. chemical sector is expected to grow faster than the global market again this year thanks to strong conditions in key end markets as well as advantaged energy and feedstock supply. U.S. volumes are forecast to grow 3.6% in 2019, up from 3.1% in 2018. Global chemicals output is set to rise 3.0% in 2019 compared to 2.8% last year, according to the American Chemistry Council (ACC).
“American chemistry is set for significant growth in output as new production capacity comes online and demand strengthens in key end-use markets,” says Martha Moore, senior director of policy analysis and economics at ACC.
Chems May Face More Tariffs in U.S., China Trade War2
ICIS 12/27/2018
Chemical companies could face more trade barriers and tariffs if the US and China fail to reach an agreement that addresses their trade grievances. As the trade war between the U.S. and China continues beyond its third round of back-and-forth, the chemicals industry is following closely. On December 1st, the U.S. and China initiated a 90-day truce, during which time the two countries will not impose any new tariffs and will work to finalize details on a permanent trade agreement. If no agreement is reached by March, the U.S. will likely increase tariffs from 10% to 25% on $200 billion worth of Chinese imports and China is expected to respond in kind.
Akzo Nobel Spinoff Nouryon Seeks Price Rises to Offset Higher Raw Material Costs3
Wall Street Journal 12/24/2018
Dutch chemicals company Nouryon BV plans to continue raising prices, boost productivity, and increase production capacity in preparation for a potential stock-market listing.
Similar to peers including German chemicals firms BASF SE and Covestro AG, Nouryon has been suffering from rising raw material and energy costs over the course of the year. The chlorine manufacturer, which also produces performance chemicals used in athletic shoe soles and wall paint, is looking to further hike prices to offset those cost increases, Chief Financial Officer Renier Vree said in an interview with CFO Journal.
Read the full article here.
China Nears Megamerger of ChemChina, Sinochem Group4
Bloomberg 12/11/2018
China is nearing a long-awaited megamerger of China National Chemical Corp. and Sinochem Group after top executives completed preparatory work for the deal, people with knowledge of the matter said.
The merger, in the works for at least two years, would change the landscape of the nation’s chemicals industry and add to a wave of consolidations aimed at shaking up China’s vast state-owned sector. The planned combination would produce an oil-to-chemicals giant with more than $100 billion of assets.
Read the full article here.
Sustainability: Bold Goals Reshape Strategies1
Chemical Week 12/10/2018
The role of sustainability has shifted from initiatives aimed at increasing goodwill and reducing costs to a business imperative shaping future-proof portfolio and driving strategic decision making. Market opportunity, regulatory action, and corporate responsibility are driving the entire chemical supply chain towards more sustainable and environmentally responsible practices. Many companies have shifted away from viewing sustainability as a distinct set of initiatives to an embedded factor in everyday decision making and overall corporate strategy.
Public Comparables5
As of January 11, 2019 ($ in millions, except per share amounts)
Public Markets Overview5
Chemicals and Specialty Materials Trading Statistics
As of January 11, 2019 (TEV / NTM EBITDA)
Chemicals and Specialty Materials Index (12-Month Performance)
HW Commentary
- Chemicals and specialty materials public companies are currently trading at an overall median of 8.7x NTM EBITDA, with significant disparity across sub-sectors
- The broader equities markets have seen elevated volatility in early 2019 driven largely by unease over the resilience of the global economy, the Fed's continued rate increases, and geopolitical tensions, among other factors
- The ongoing trade war between the U.S. and China has impacted 1,000+ chemicals and plastics exports worth ~$10.8 billion1
- ACC expects that U.S. chemical production will grow 3.6% in 2019 following 3.1% annual growth in 2018, driven by expansion across a broad band of industrial sectors
M&A Transactions5,6
Harris Williams Deal Spotlight
Whitford Worldwide
Harris Williams is exclusively advising Whitford Worldwide Company (Whitford) on its pending sale to PPG Industries, Inc. (NYSE:PPG). The transaction, which is subject to customary closing conditions, is being led by Patrick McNulty, John Lautemann, and Ty Denoncourt of the firm’s Chemicals and Specialty Materials practice.
Whitford specializes in manufacturing low-friction, wear-resistant coatings for industrial applications in automotive, aerospace, energy, and construction markets, and provides coatings services. The company also makes non-stick coatings for cookware, bakeware, and small electric appliances such as toaster ovens, griddles, fry pans, and irons.
“It has been a privilege to work with Whitford on this transaction and we look forward to watching their partnership with the PPG team drive continued success,” said John Lautemann, a director at Harris Williams. “Our firm has been active across the broader industrials and specialty chemicals sectors, and the sale of Whitford represents another marquee transaction for Harris Williams.”
Recent Chemicals and Specialty Materials Transactions
Representative HW Chemicals & Specialty Materials Transactions
1. Chemical Week
2. ICIS
3. Wall Street Journal
4. Bloomberg
5. Factset
6. Mergermarket
The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.
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