Commentary: Univar IPO yields a robust valuation

The initial public offering (IPO) of US-based Univar offers a glimpse of what a large chemical distributor is valued at in the public market. And that valuation should cause others to take notice.

Univar’s IPO on 18 June was very well received, with pricing of $22/share at the top of the estimated range, and the size of the offering bumped up to 35m shares from the original 20m. The company sold 20m shares and existing investors 15m shares.

In a concurrent private placement, Univar also sold $350m in shares to a new investor – Singapore’s sovereign wealth fund Temasek Holdings – at $21/share.

Univar raised gross proceeds of $790m in both transactions and will use a large chunk of that to pay down $650m in corporate debt maturing in 2017 and 2018.

While this provides Univar greater financial flexibility to make further investments, including acquisitions, it remains leveraged with net debt/EBITDA (earnings before interest, tax, depreciation and amortization) at 4.6x based on 2014 EBITDA.

Univar’s adjusted EBITDA margins were 6.2% in 2014, 5.8% in 2013 and 6.2% in 2012, providing an indication of the relative stability of cash flows to service debt on the one hand, and the thin nature of margins in the distribution sector on the other. The IPO showed strong demand for a global chemical distributor with a heavy presence in the US. At the IPO price of $22, the EV/EBITDA (enterprise value/EBITDA) multiple was a healthy 9.3x based on 2014 EBITDA.

“This shows investor interest in the chemical industry and distributors with enhanced ability to service customers and suppliers – from specialty products to basic chemicals, and including value-added services,” said Erik Fyrwald, CEO of Univar, in an interview with ICIS. “The IPO’s success also shows interest in the industrial marketplace and especially in the US, where shale oil and gas is supporting the chemical sector.”

Of Univar’s $10.37bn in sales in 2014, the US comprised the lion’s share of sales at 59%.

Following the IPO, shares of Univar surged further, surpassing $27 on 23 June. At $27, the EV/EBITDA multiple is a robust 10.4x based on 2014 EBITDA.

Large private chemical distributors will no doubt be encouraged by the public valuation that Univar has garnered. Smaller distributors considering a sale of their business may also take heart, although they should not expect the same type of multiple in a buyout.