M&A auctions. What’s not to like?

If you buy or sell companies in the Chemical sector, you’ll recognise auctions as a prominent feature of the M&A landscape. They come in different forms from targeted solicitation to broad auctions and, in the middle-market, it’s the latter that’s most common.

Broad auctions

So, broad auctions. If you’re a buyer, what’s not to like? The selling company does all the heavy lifting in advance. They will hire an investment banker to value the business based on relevant comparables and multiples that best match the seller’s niche in the chemical sector. A glossy prospectus is prepared with the information a buyer needs, from financials to future opportunities for growth. Everything handed to you, on a plate.

Trouble is, the investment banker will see it as their responsibility to get the best price for their selling client. So tens, if not hundreds, of prospecti are mailed out. Suddenly it’s a very crowded market.



Pitfalls for the seller?

Good news for the seller, surely? Well, possibly. Yes, it’s good to raise a lot of interest but such a broad-brush approach can attract possible buyers who soak up many hours of the seller’s valuable management time, only to discover the target is not really what they’re looking for. The road from Indication of Interest to Letter of Intent is littered with good intentions and discarded prospecti.

The broad auction will continue to play a prominent role in Chemical M&A activity, but with the market showing an increasing tendency towards more complex cross-border deals, it begs the question whether such a reactive, follow-the-herd approach will serve buyers best in the future.


Fit v. Price

Increasingly, when embarking on growth through acquisition, the best ‘fit’ is becoming as important as the right price, if not more so. As we have seen, some companies will accept significantly higher valuations if they can see synergies in the target that will help unlock value within their own business.

So a more pro-active, finessed approach might be more effective where the buyer decides exactly what they need to grow and goes looking for it, whether it’s on the market or not. This could be particularly appropriate if the current trend for mega-deals continues, as they will inevitably produce potential divestitures which can be seen early from outside the two companies. A good starting point for a pro-active buyer.


Seeking a guide

The only missing piece in this jigsaw is who? Who will embark on this surgical exploration to extract the right opportunity? The time-poor Chief Executive? Perhaps not. Such targeted searches don’t happen overnight. It can take years to pull such a deal off, particularly when the acquired company is not for sale initially.

Jigsaw pieces

It takes dedicated, committed and continuing effort from people who focus on this, and nothing else. It takes the experts.


Considering buying or selling 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: Simon Wilson

Simon is based in the UK and works on global chemical M&A projects. Simon has over thirty years’ experience in the chemicals industry, including seven years as global commercial director of Ineos Silicas. He holds a degree in chemical engineering from the University of Birmingham (UK) and a postgraduate diploma in European Competition Law from King’s College, London. After graduating, Simon worked as an engineering trainee for Unilever, before rising through the ranks in the commercial function at ICI, Ineos and PQ. His experience includes sales, marketing, procurement, business development, general management and M&A. He has wide geographical knowledge, having lived and worked in the UK, the Netherlands and Brazil. In 2007-2008, he was a key part of the Ineos team that assembled the PQ joint venture with Carlyle. Simon joined CDI Global in 2013.