SAZUN BLOG
September 5, 2022

Industry Insight Specialty Chemicals

„Demand for chemicals is experiencing severe shortages across end-markets, global supply chains are disrupted, and the competitive landscape of chemical producers in the US, Middle East, China and Europe has changed virtually overnight.“

 

Wolfgang Regele
Managing Partner

 

Market Insights
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Global Market

Worldwide revenue
in billion USD

Global chemical M&A activity
by target sector

  • Strong demand for both commodity and specialty chemicals should keep prices robust throughout the year. The industry should also experience increased capital expenditure as leading industry players focus on building capacity and expanding into growing end markets through both organic and inorganic growth. However, the industry could face margin pressures amid raw material cost inflation, which will likely remain high through the second half of 2022.
  • The favorable environment for strong M&A activity in the chemicals industry continued in 2022  — with a push towards building more focused portfolios, abundant dry powder from private equity funds, a favorable economic backdrop in many global economies, and chemical companies in search for growth. The energy transition, and the move toward decarbonization and a more circular economy, are also bound to rise in focus as chemical companies shape their M&A strategies for 2022 and beyond.

Sources: Deloitte, Royal Society of Chemistry,  Cefic, ICCA, Allied Market Research, McKinsey

Specialty & Intermediate Chemicals Market at a Glance

Sources: Deloitte, Royal Society of Chemistry,  Cefic, ICCA, DataIntelo, McKinsey

Latest Trends in the Chemical Industry

Chemical companies are likely to leverage digital technologies to enable automated trend sensing and social media scanning (using text analytics) to identify broader market trends and customer requirements. This customer-centric innovation, which solicits real-time feedback through customer engagement tools, could help improve the scope, scale, and returns of R&D efforts.

In the past, chemical businesses have typically implemented advanced data analytics and digital initiatives in silos, resulting in slower processes, higher costs, and uncertain benefits. However, chemical firms are now increasingly realizing that digital transformation is about implementing more and better technologies and involves aligning culture, people, structure, and tasks.

 

The rising concerns about the harmful effects of conventional chemicals on the environment have led to an increase in the demand for user- and environment-friendly specialty chemicals. As a result, leading players are focusing on the development and marketing of specialty chemicals in these variants to expand their product portfolio and improve their overall sales. These players are also investing in research and development activities to provide innovative and custom-made specialty chemicals for target applications.

 

The pressure on global supply chains continue to impact markets such as the automotive sector which continues to struggle with shortages of semiconductor chips. Input and labour shortages continue to worsen across Europe, with the CEE economies being the most affected. Shortages of equipment continues to be a key factor having shot up and remaining at an elevated level. Europe and North America will likely endure relatively higher levels of disruption with the former also impacted by supply disruptions caused by the Russia-Ukraine war. The energy price shock have put European producers under significant pressure and falling demand in key end-use sectors will limit producers‘ ability to pass on cost increases.

Sources: Deloitte, Royal Society of Chemistry,  Cefic, ICCA, Allied Market Research, McKinsey

Valuation Trends and Developments 

EV/SALES (Last 12 Months)

EV/EBITDA (Last 12 Months)

  • The peer group consists of stock-listed companies in the chemical industry. For small and mid-sized businesses 20-30% markdowns in valuations can be expected.
  • EV/SALES & EV/EBITDA multiples have decreased over the LTM period due to the consequences of Covid-19. Likewise, because of raw material prices rising and energy prices skyrocketing, while the ongoing destruction and uncertainty surrounding the situation in Ukraine is creating economic ripples that is affecting chemical companies. There is also an accelerated oversupply and imbalances from supply disruptions and demand shocks which leads to the lower valuations.

Source: Sazun Equity Research, Chemicals Peer (2022)

Key Performance Indicators

Source: Sazun Equity Research, Chemicals Peer (2022)

Peer Group

Source: Sazun Equity Research, Chemicals Peer (2022)

Selected Deals – Specialty & Intermediate Chemicals

Sources: Sazun Equity Research, Mergermarket, Buzzfile, Bureau van Dijk

Want to know more?
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If you would like to learn more about the valuations and deals of your industry, the transaction mentioned above, or generally our way of working, we would certainly be happy to demonstrate our m&a PLUS® principle in a confidential meeting. Just get in touch and we will share our experience on how to grow businesses with long-lasting partnerships.

With passion for M&A,
Your SAZUN Team