News / Insights

Strategic Acquisitions a Platform for Growth in the Chemical Sector

Global M&A volumes within the chemical sector hit a 10 year low in 2020 but rebounded favorably to 10-year highs in 2021. Deal volume and values are down over 40% in for the first half of 2022 as Chemical companies and Private Equity evaluate the rising interest rates, COVID-19 impact, Ukraine war and possible US recession. Despite this decrease, overall deal volume and value remains resilient through Q2, 2022. (Source Cap IQ and Pitchbook)

Strategic deal volume surpassed Private Equity through the first half of the year as balance sheets remain strong and an emphasis was placed on sustainability and environmental concerns. Private Equity has a record amount of dry powder at their disposal (currently estimated at almost $1 trillion) which represents the possibility of a strong second half of the year as pressure exists to deploy this capital.

According to the American Chemistry Council commodity chemicals are on pace to grow by 4.3% in 2022, with the largest gains in bulk petrochemicals and organics, plastic resins, and inorganic chemicals. Specialty chemicals output has grown 6.2% in 2022, pulled by strong demand with capital spending anticipated to reach $34.5 billion, rising to $36.4 billion in 2023. End markets with perceived value and growth continue to be geared around the automotive, construction, agrochemical, HI&I, Personal and Home Care sectors. (Source American Chemistry Council)

Transaction Valuation metrics have also steadily declined over the last few quarters with average EBITDA multiples declining from 9.3x to 8.6x as of Q2 2022. Specialty Chemicals metrics remain strong with EV/EBITDA multiples currently trading at 16.6x in North America compared to 11.5x and 9.3x for Europe and Asia respectively. This trend should continue for the remainder of 2022 if interest rates remain constant. (Source Capital IQ)

With all of these factors companies will find it essential to evaluate sustainable initiatives, strategic or niche acquisitions in high growth areas, divestment of non-core assets, and overall improvements in operating efficiency.

About CDI

CDI Global is an international M&A Advisory and Corporate Finance firm, offering middle-market companies and large, corporate acquirers, strategic advice in mergers and acquisitions (M&A), divestitures, joint ventures, buy-side and sell-side transactions. Additional advisory services include privatization, restructuring, target analysis, valuation, and deal structuring services. Founded in 1973 and having completed over 2000 transactions world-wide, CDI Global maintains 40+ offices in the major financial centers of 30+ countries globally. For more information, visit https://www.cdiglobal.com.

By: Paul Muir