Divesting chemicals businesses in a seller’s market

You want to sell your chemicals business.
Timing, as they say, is everything.

You’re reaching retirement age and have decided to sell your private chemical company. At the moment the market is full of cash-rich financial and strategic buyers, and companies for sale are in limited supply. Happy days.

Alarm Clock

If this sounds too good to be true, it probably is for some. Currently there is a lot of liquidity and bullish sentiment among buyers. And for some they will not be fazed by high valuations…for the right target. So, if your company is strategically attractive to a buyer, you have the potential to strike a good deal. But what if it’s not?

Be realistic

A fundamental point about value in M&A is that it’s essentially determined by the market and ultimately the buyer. The existence of a strong seller’s market does not automatically transfer a mega-EBITDA valuation to your business when the ‘for sale’ sign goes up. And if neither the rainbow or pot of gold materialize, you need to take a cold, hard and realistic look at your business:
 – Rather than dream of a maximum price, make sure you’re absolutely sure of your minimum, with the evidence to back that and any other non-negotiable conditions

– Avoid significant pre-sale investment to support your projections for future growth. Potential buyers may have other strategic plans and not be impressed, particularly if the investment is loaded into your asking price.

– Be prepared for buyers who may want to lock you into the business post-sale to protect their investment during the transition period. It may be a price you have to pay to achieve the high valuation you are seeking.

– Equally, you may wish to keep a stake in the firm if you are confident about future growth and profits. Again, decide if you’re willing for this to be a deal-breaker.

Be pro-active

That’s why, even when there’s a scarcity of businesses for sale, you need to be pro-active when marketing yours. It’s important you gain thorough market knowledge of who might be interested in your business and then see if you can prepare your case as a good strategic fit with them.

Athletics Runner

Understanding your time and resource constraint in selling your business is also key and you should always consider the possibility of hiring an M&A professional. That makes it more likely that the buyer will (a) be more interested and (b) willing to dig a little deeper into their pockets.  

Considering selling your chemicals business? 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.