INTERVIEW: Chemicals carve-out and transformative M&A activity to ramp up – banker

Joseph Chang

07-Jul-2020

NEW YORK (ICIS)–The global chemicals sector is poised to see more corporate carve-outs and transformative deals, an investment banker said on Tuesday.

“Today there’s a little bit better visibility on earnings for this year and next, and that’s driven the restart of processes,” said Alain Harfouche, managing director at investment bank Guggenheim Securities.

“We will see a rise in corporate activity, whether it’s carve-outs, transformative deals or stock-for-stock transactions,” he added.

Coming out of the coronavirus crisis, it is a good time for companies to not only take stock of their portfolios but to also take action – by making acquisitions to transform or to let go of non-core assets, he noted.

US-based PolyOne’s acquisition of Clariant’s colour masterbatch business for $1.44bn completed on 1 July is an example of transformative M&A even amid the crisis. The deal multiple was a healthy 10.8x adjusted 2019 earnings before interest, tax, depreciation and amortisation (EBITDA).

PolyOne, which changed its name to Avient upon the deal’s close, noted that it now expects 85% of EBITDA to come from specialty applications versus 10% a decade ago.

“Despite the Covid dynamics, they stuck to the deal and got it to the finish line, and I think the long-term impact of the transaction will be very favourable as it supports the ongoing migration of their portfolio toward specialties,” said Harfouche.

“We’re going to see a lot more of these transactions – more execution on corporate goals,” he added.

The prevalence of European carve-outs today points to a progression of the sector from conglomerates to pure play enterprises, the banker noted.

“The evolution for the most part has taken place in the US and played out very well. From a competitive standpoint, companies have really bolstered their positions and we’re now seeing this in Europe. Carve-outs are just the result of the execution of more of a pure-play strategy,” said Harfouche.

“Fast forward 10 years and it’s going to make its way to Asia where many companies currently tend to operate with a conglomerate mindset,” he added.

Germany-based BASF, perhaps the world’s most diversified chemical company, has been active on the carve-out front, having agreed to sell its construction chemicals business to private equity firm Lone Star for €3.17bn and its pigments business to Japan’s DIC for €1.15bn.

Private equity firms may become more active as well on the buy side as the financing market shows an “improving appetite for chemical LBOs (leveraged buyouts),” said Harfouche.

Although there are not many distressed chemicals assets for sale as the sector has rebounded quickly to some extent, private equity firms continue to be interested, well aware of the outsized returns from deals executed during the last downturn, he noted.

And supply is returning to the M&A market as conditions and visibility improve. Specialty and agricultural chemicals assets are more favoured but even commodity businesses such as those in acrylics are finding interested buyers, he noted.

“Every day there are more transactions launching,” said Harfouche.

Interview article by Joseph Chang

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?