The first half of this year has seen a steady flow of deals in specialty chemicals and materials. Dealmakers tell us what’s driving this activity and what they’re looking for to make a deal happen.
Dealmaking has been robust so far this year and is expected to continue. Buyers are sometimes large public companies seeking to grow volume or to integrate their supply chain, but more often buyers are private equity firms building scale to attract a strategic buyer.
| Recent Specialty Materials Deals | ||
|---|---|---|
| Buyer | Seller | Noteworthy |
| Cinven | FMC Corp.’s non-crop agricultural chemicals division | $350M deal |
| Brenntag | Industrial Chemicals Corp. | Denver-based target |
| CC Industries | Foremark Performance Chemicals | Target owned by SK Capital |
| Apotex | Searchlight Pharma | Acquirer owned by SK Capital |
| Luxium Solutions | Inrad Optics | Acquirer jointly owned by SK Capital/Edgewater Capital |
European private equity firm Cinven on July 11 agreed to buy the non-crop agricultural chemicals business of FMC Corp. (NYSE: FMC) for $350 million. The week before, global distribution major Brenntag acquired the assets of family-owned Industrial Chemicals Corp. of Denver.
SK Capital, one of the largest PE firms active in specialty materials, has been on almost a deal-a-month pace. In April it sold Foremark Performance Chemicals to affiliates of CC Industries, the management company for the Crown family’s privately held companies. SK portfolio company Apotex, a Canadian pharmaceuticals firm, also acquired Searchlight Pharma. In early July, Luxium Solutions acquired Inrad Optics. Luxium is jointly owned by SK and Edgewater Capital Partners.
Speaking at a recent industry conference in Savannah, Ga., Omar Diaz, managing director of mid-market investment bank Balmoral Advisors, said his firm looks at five key factors in a seller when putting together a deal:
- Processing capability
- Equipment integrity
- Demonstrable customer relationships
- Stability of cash flow
- Growth potential
“Ultimately, people buy people,” meaning talent, Diaz stressed.
Beyond the company and its people, Diaz says his firm thinks about the deal process itself. “If we are in the room with all the top people, but the only one talking is the owner, that is a red flag. That means the team is not empowered, and we question their ability to provide answers,” to potential buyers.
“Our company came together through M&A, and of our facilities are very different,” J. Bryan Kitchen, CEO of Ascent Industries, said at the conference in Savannah, Ga.
“I don’t want to break up the culture, the camaraderie, the collaboration within each operation. But we do want to identify and share best practices across all of them,” he said.
Ascent is a publicly traded diversified industrial firm focused on specialty chemicals, as well as stainless-steel and nickel-alloy pipe and tube.
Kitchen said his firm looks for alignment across the operation. “When we go onto the shop floor, can we walk up to an operator and have a conversation? Are the people on the shop floor excited about what they do?”
Continuing on that theme, Diaz added, “if operators can suggest changes or innovations to potential buyers, that is a hallmark of a top-tier company.”
Diaz also emphasized the importance of back office operations. “We see all the time companies with hundreds of millions of dollars in sales operating with just a bookkeeper using QuickBooks. We worked with just such a company a year ago. We had to bring in a CFO and it worked out fine in the end, but it was a heavy lift.”
