The next wave of mergers and acquisitions activity in the chemical sector will involve mid-size companies buying non-core assets being divested by larger companies, an investment banker said on Thursday.
“Although there are more mega deals to come within the chemicals industry, there has been a noticeable shift to undertake smaller acquisitions and divestments that target specific portfolio shortcomings and deliver tangible results in the short and mid-term,” said Chris Cerimele, managing director at investment bank Balmoral Advisors.
“It is expected that going forward, the next wave of M&A in the chemicals industry will involve mid-sized companies buying some of the non-core assets of the new mega companies,” he added.
One example would be PolyOne’s rumoured potential acquisition of Clariant’s masterbatches business.
“With five acquisitions in the past two years and 10 in the past five years, PolyOne has been using acquisitions to augment growth in the Engineered Materials, and Color, Additives and Inks segments… We think the Clariant assets could… help accelerate the development of higher-margin innovations and support sales growth 100-200 basis points (1-2%) above end market trends,” said Laurence Alexander, analyst with Jefferies.
A PolyOne/Clariant masterbatches tie-up at $1.5bn 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, he noted.
“Specialty chemicals assets are still desirable and companies are looking for good strategic fits,” said Cerimele.
“Meanwhile, private equity firms are still as active as ever, especially those that are building on existing platforms. They are starting to hire advisors for add-ons to portfolio companies,” he added.
Continuing consolidation in specialty chemicals is decreasing the number of high quality targets for acquirers, driving up trading multiples, said the banker.
In Q3 2019, the average transaction EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) multiple for specialty chemical deals was 11.3x versus 9.1x for all chemical deals, according to Balmoral Advisors.
“There are fewer quality acquisition candidates, so when they do come on the market, there’s lots of competition,” said Cerimele.
“With a wealth of strategic acquirers active across the globe, in addition to a well-funded private equity market, we will continue to see healthy M&A activity for the remainder of 2019,” he added.
Specialty chemicals sectors in demand include personal care, cosmetics and food ingredients as well as coatings and anything related to CASE (coatings, adhesives, sealants and elastomers). Natural ingredients businesses in personal care and food ingredients in particular attract a great deal of attention.
On the other side, assets heavily concentrated on struggling sectors such as automotive and construction are facing more scrutiny from buyers, he noted.
By Joseph Chang
Source: ICIS News
France has launched an offshore green hydrogen production platform at the country’s Port of Saint-Nazaire this week, along with its first offshore wind farm. The hydrogen plant, which its operators say is the world’s first facility of its type, coincides with the launch of another “first of its kind” facility in Sweden dedicated to storing hydrogen in an underground lined rock cavern (LRC).
The project sets up the Hydrogen Valley in Rome, the first industrial-scale technological hub for the development of the national supply chain for the production, transport, storage and use of hydrogen for the decarbonization of industrial processes and for sustainable mobility.
At first glance, hydrogen seems to be the perfect solution to our energy needs. It doesn’t produce any carbon dioxide when used. It can store energy for long periods of time. It doesn’t leave behind hazardous waste materials, like nuclear does. And it doesn’t require large swathes of land to be flooded, like hydroelectricity. Seems too good to be true. So…what’s the catch?