Acquiring chemical companies in a seller’s market

Is it possible for a buyer to get a good deal when all the cards are in the hands of the seller right now?
Every cloud…

Modest organic growth, an abundance of liquidity and a relative scarcity of suitable targets make a chemicals industry M&A cocktail to be mixed with care.

Pressure mounts for expansion through acquisition. The market knows this and reacts to type: valuations of the preferred acquisitions head north at speed and soon EBITDA multiples are at near historical levels.

And in the middle of all this noise, you’re trying to maintain your focus on making an acquisition critical to realizing your strategy moving forward. Welcome to the world of acquiring a chemicals company in a seller’s market.

clouds2

 

…has a silver lining.

If this all sounds challenging, the good news is there are still deals to be done if you know where to look. For example, despite uncertainties created by the incoming Trump administration, US chemical companies in various sectors remain attractive to buyers.

For many, consolidation will be the name of the game but not all sectors have yet matured in this regard, and opportunities may exist elsewhere, but you may have to be pro-active to leverage them.

Equally, the trail of mega-deals that has been a feature of the last two years will lead to a steady supply of acquisition opportunities once, or if, they clear the regulators. Anti-trust laws will force the new enlarged companies to divest certain businesses, that and a need to trim and shape their portfolio.

And a steady supply of auction prospects may continue to land on your desk. But, remember, you’re looking for suitable targets, those that offer the best strategic fit. Even if you fall lucky and find a company offering itself publicly for sale that is a perfect match, you will be hunting with the pack, limiting your chances of acquiring the ingredients of a really great deal – good fit and good price.

 

Define your target and spread your net 

History tells us that the acquiring companies who achieve this perfect combination have understood early the value of specialist advice. This allows them to broaden their scope considerably. One way of easing the pressure of a seller’s market is to not restrict your ambitions solely to those who are currently selling. Instead, with the right guide, you can actually consider every company as a potential target.

target

And that means every company globally – another reason to seek guidance because cross-border deals can bring both a whole new range of opportunities and financial, regulatory and cultural issues. For example, investing heavily in emerging economies with volatile currencies should not be undertaken by the uninitiated.

None of which should put you off, as long as you’re willing to put in the hard yards, aided by expert advisors. In this sector, fortune favors the diligent, as much as the brave.

Thinking about buying in the chemicals sector? Download our free guide for insights into the chemicals market in 2017 and insider knowledge on identifying the right opportunities. 

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Author: Paul Muir

Paul Muir is a CDI Global Partner based in Boca Raton, Florida. A native South African, he has worked at CDI Global since 2001 and is currently Global Coordinator and Director of our North American offices. Paul also leads our North American chemicals team and has advised on several chemical M&A transactions for clients including The Lubrizol Corporation (Now a Berkshire Hathaway Company), BASF, Dystar LP, Solvay, Robertet, The Chemlogics Group, FibroChem, DuPont, Dow Chemical, Pilot Chemical, Nupro, MeadWestvaco, & Teijin. Paul has been a pivotal member of many search assignments within other industries including biometrics, HVAC, instrumentation, packaging, software and public safety industries. Previous clients include Advanced Public Safety, Appleton Paper, GE Medical, Lubrizol, Nagelbush Mechanical, SmartProcure and Sense Holdings.