Chemicals and Specialty Materials Industry Update

Introduction

Harris Williams is pleased to present its chemicals and specialty materials industry update for July 2019. This report provides commentary and analysis on current market trends and merger and acquisition dynamics within the global chemicals and specialty materials industry.

As we shift into the second half of 2019, a number of interesting narratives have further solidified in the chemicals and specialty materials market:

  • Not surprisingly given the sector’s relative stability, private equity continues to gain share as a percentage of overall specialty chemicals deal volume
  • Corporate divestitures continue to proliferate as large, diversified chemicals players shed non-core operations to focus more on higher-margin businesses
  • We are seeing disproportionate activity and interest in particularly attractive sub-sectors, such as distribution, food ingredients, and CASE

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.

By the Numbers1,2

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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

Proceed With Caution; M&A Steady Amid Uncertainty3

Chemical Week  7/22/2019

“Measured by announced deals, 2019 has been another good year for chemicals M&A so far. Volume has been remarkably stable year-to-date (YTD) declining just 1% from 2018 levels, with 142 transactions announced so far this year. Deal values have more than doubled from 2018, due to Saudi Aramco’s agreement to acquire Sabic for $69.1 billion…EBITDA multiples for announced dealers have mostly held up, although bankers say that there have been declines in some commodity chemical transaction and for assets with heavy exposure to Europe. Average EBITDA multiples fell below 10x during the first quarter of the year, but moved back above that level in the second quarter.”

Read the full article here.

Polyethylene Capacity Overhang Looms3

Chemical Week  7/22/2019

“Rapidly-expanding worldwide production capacity for polyethylene (PE), aided by China’s continuing journey toward PE self-sufficiency, will overwhelm demand growth and lead to a significant supply overhang, says IHS Markit.

After years as the global demand driver, China is now becoming the driver for capacity additions. Of the 30.5 million metric tons (MMt) of new total capacity for PE forecast by IHS Markit to come on-line worldwide over the five-year period from 2019-2023, about 12.6 MMt or 41% of that total will be located in China.”

Read the full article here.

Axalta Draws Interest from Kansai Paint and PPG4

Bloomberg  7/18/2019

Axalta Coating Systems Ltd., the car-paint maker exploring a sale, has drawn preliminary interest from rival companies. Kansai Paint Co. Ltd. and PPG Industries Inc. are among firms considering making offers. Private equity firms are also looking, though interest has been lukewarm so far.

Axalta hasn’t made a final decision on selling all or part of the company and bidders could end up opting against formal offers. The Philadelphia-based company is in the early stages of soliciting offers from several parties with the aim of reaching a deal in the fall.

Read the full article here.

BASF Profit Warning Ripples Through Economy from Cars to Crops4

Bloomberg  7/8/2019

“BASF fired a warning shot signaling a weakening global economy, as the world’s largest chemical company said slowing markets from cars to crops and the impact of the U.S.-China trade war threaten to cut profit by 30% this year…The projected drop in earnings before interest, taxes and special items was “mainly due to the trade conflicts,” BASF said late Monday. Tensions between the U.S. and China haven’t eased as expected, and that has slowed decision-making and investments in key markets including the Asian country. BASF doesn’t see the situation improving in the second half of 2019.”

Read the full article here.

The Industrial Coatings Market5

Coatings World  5/31/2019

“The global industrial coatings market is expected to grow from $98.3 billion in 2017 to $131.0 billion by 2022, at a CAGR of 5.9% from 2017 to 2022…The industrial coatings market in APAC (Asia Pacific) is expected to grow at the highest CAGR during the forecast period. APAC is rapidly expanding the market, owing to the growing economy and increasing middle-class population.”

Read the full article here.

Public Comparables2

As of July 22, 2019 ($ in millions, except per share amounts)

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Public Markets Overview2

Chemicals and Specialty Materials Trading Statistics

As of July 22, 2019 (TEV / NTM EBITDA)

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Chemicals and Specialty Materials Index (12-Month Performance)

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HW Commentary

  • Chemicals and specialty materials public companies are currently trading at overall medians of 10.8x LTM EBITDA and 9.4x NTM EBITDA
  • The U.S. is poised for continued capital investments and production gains within the chemical industry, driven by growth in key end markets and the surging domestic supply of natural gas as well as natural gas liquids
  • Japan recently tightened export restrictions of three specialty materials used in smartphones, sparking a trade dispute with South Korea and forcing two primary suppliers to evaluate alternative sourcing options
  • The American Chemistry Council (ACC) expects the U.S. chemical industry’s trade surplus to reach $37 billion in 2019, with exports growing 5.9% to $149 billion

M&A Transactions1,2

Harris Williams Deal Spotlight

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Tech Air

Harris Williams advised Tech Air, a portfolio company of CI Capital Partners LLC (CI Capital Partners), on its sale to Airgas, an Air Liquide company.

Founded in 1935, Tech Air is a leading packager and distributor of industrial, medical, and specialty gases, welding equipment and supplies. The company is headquartered in Danbury, Connecticut, serves more than 45,000 customers and operates approximately 50 locations in California, Texas, the Northeast, and Southeast.

“Tech Air is known as a best-in-class independent distributor of industrial, medical and specialty gases,” said Giles Tucker, a managing director at Harris Williams. “The combination with Airgas is a perfect strategic fit that will drive growth going forward.”

Pascal Vinet, Chief Executive Officer of Airgas, Inc. and Air Liquide Executive Committee Member, commented: "The completion of the acquisition of Tech Air is an important milestone in Airgas' development. Tech Air’s highly professional teams and complementary distribution network will be strong assets to efficiently serve our customers. We welcome our new Tech Air colleagues to Airgas and the Air Liquide family and now begin the integration process."

Press Releases

Harris Williams

Airgas

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    Representative HW Chemicals and Specialty Materials Transactions

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    1. Mergermarket

    2. S&P Capital IQ

    3. Chemical Week

    4. Bloomberg

    5. Coatings World

     

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