Chemicals and Specialty Materials Industry Update

Introduction

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

For sellers of chemical businesses, market conditions remain highly attractive despite having grown more and being more challenging to navigate.  The combination of increasingly selective and disciplined buyers and lending market choppiness is set against the favorable backdrop of abundant capital, both on corporate balance sheets and in the form of private equity dry powder.  Moreover, the calculus underlying broader macroeconomic conditions and the implications for near-term M&A must also be considered as news of record-breaking U.S. equity markets persists alongside Brexit woes, slowing Chinese growth and uncertainty from tariffs.

Fortunately, experienced advisors can analyze company-specific and market dynamics to craft the right type of outreach to achieve shareholder objectives while minimizing the impact from this temporary noise.  HW would welcome the opportunity to discuss how we can help.

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

What We’re Reading

A Winding Road: M&A, Economic Uncertainty Change the Game for Distributors1

Chemical Week  10/28/2019

"Chemical distributors are facing an increasingly shaky economy and more demands from both customers and suppliers. Meanwhile, consolidation has picked up speed—and produced an ever-shifting competitive landscape.

Distributors are feeling the effects of an economic slowdown, but say that fundamental growth drivers remain in place. Chemical makers continue to outsource more of their business—and more aspects of their business—to distribution partners, leading to growth that outpaces the industry as a whole."

Read the full article here.

Aramco Seeks Top Refining and Chemicals Spots to Bolster Growth2

Bloomberg  10/21/2019

"Saudi Aramco is pressing ahead with plans to become the world’s biggest oil refiner and a top chemicals maker to secure future demand for its crude and bolster growth.

The state oil producer is looking to invest in projects that are already built or under construction in markets with the fastest-growing demand such as India and China, said Abdulaziz Al-Judaimi, Aramco’s senior vice president for downstream."

Read the full article here.

Next Wave of Chemical M&A to See Mid-Sized Companies Buy Corporate Carve-Outs3

ICIS  10/17/2019

The next trend in chemical M&A will pivot from large public players coming together, toward smaller acquisitions and divestitures as chemical conglomerates shed non-core assets and focus their strategies.

One example would be PolyOne’s rumored potential acquisition of Clariant’s masterbatches business. A PolyOne / Clariant masterbatches tie-up at $1.5 billion could generate a 9.0% return on invested capital (ROIC) by the third year assuming a 5% synergy target and a 2% cost of debt, according to the story.

Read the full article here.

Developing Growth in Water Treatment: Strongest Potential in Emerging Economies1

Chemical Week  10/14/2019

Demand for clean and safe water in emerging markets will drive the strongest growth opportunities for water treatment chemicals, ranging from sterilizing products such as chlorine and ozone, to coagulants and enhancers such as aluminum sulfate and fluoride.

The global market for water management chemicals was worth $9.33 billion in 2018, and is estimated to grow at an annual rate of 3.8% through 2023, according to IHS Markit.

Read the full article here.

M&A – Understanding the Dynamics for Buyers and Sellers4

Coatings World  08/09/2019

"M&A activity, within the CASE / specialty chemicals markets, continues at a very high level. Today, this is especially true in North America. In a large part, this activity level is driven by the strength of the U.S. economy over the last few years. During the same period, shifts in the global economy have resulted in the increased importance for greater participation (or in establishing a presence) in the North American market by offshore companies.

For Europe, the slowing of the European economy along with shifts in manufacturing infrastructure from the EU into the Asia Pacific region have elevated the value of offshore expansion."

Read the full article here.

Public Comparables5

As of November 5, 2019 ($ in millions, except per share amounts)

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1. Pro forma for Dow Inc. and Corteva divestitures

2. Pro forma for Masterbatches and Healthcare packaging divestitures

3. Pro forma for Composites segment divestiture

4. Pro forma for Performance Products and Solutions divestiture

Public Markets Overview5

Chemicals and Specialty Materials Trading Statistics

As of November 5, 2019 (TEV / NTM EBITDA)

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Chemicals and Specialty Materials Index (12-Month Performance)

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Global economic growth has moderated in 2019 due in part to pockets of soft international demand as well as the continued trade dispute between the United States and China.  While an interim deal has been reached, uncertainty abounds for nearly all of the $510 billion of goods imports from China to the United States, including numerous chemical related products.

Source: Capital IQ

M&A Transactions5,6

Harris Williams Deal Spotlight

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DuBois Chemicals

Harris Williams acted as the exclusive advisor to DuBois on its sale to Altas Partners. The transaction was led by Patrick McNulty, John Lautemann and Ty Denoncourt of the firm’s Chemicals and Specialty Materials practice.

DuBois Chemicals, Inc. is a premier provider of customized and value-added specialty chemicals solutions and services to a global customer base.  The company combines local high-touch technical service, leading R&D capabilities, customized equipment solutions and deep knowledge of manufacturing processes to deliver reliable, mission-critical and innovative products to more than 15,000 customers globally across a spectrum of industries and end markets.  DuBois’ full suite of solutions and services brings leading, reliable technologies that reduce chemical, water, labor and energy costs for customers, and support their operations to improve quality and efficiency.

“We have had the privilege of working with Jeff Welsh and the DuBois team on several transactions,” said McNulty, a managing director at Harris Williams. “We believe DuBois’ new partnership with Altas sets up the company for continued growth and success.”

Recent Chemicals and Specialty Materials Transactions

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Source: Capital IQ. Merger Market, HW

Representative HW Chemicals and Specialty Materials Transactions

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1. Chemical Week

2. Bloomberg

3. ICIS

4. Coatings World

5. CapitalIQ

6. Merger Market

 

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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