Specialty Chemicals M&A Market Remains Strong as Players Reassess Product Portfolios and Sustainability is Emphasized
Capstone Partners released its November 2022 Specialty Chemicals M&A Update, reporting that amid considerable sector and economic headwinds, chemical output is expected to have a strong year. All chemistries are projected to record growth driven by inventory rebuilding, healthy household and corporate balance sheets, high industrial production, and favorable feedstock prices. However, exposure to healthy end markets and the ability to pass higher input costs onto the consumer have been key determinants of performance in the current environment. Companies are expected to use divestitures to shed non-core assets and free up capital to reinvest in high-value opportunities. In addition, efficient chemical production is expected to drive revenue opportunities as sustainability is increasingly emphasized by governments and consumers.
The Chemicals sector recorded a boom in merger and acquisition (M&A) activity in 2021, in which total transactions announced or closed leaped 70% year-over-year (YOY) as companies divested assets to capitalize on the high valuation environment and acquired businesses that aligned with growth trends. On the heels of record volume, M&A activity remains healthy year-to-date (YTD), falling only 11.2% from the same period in 2021. Public strategic buyers have accounted for the largest share of volume to-date as leading players have utilized M&A to bolster exposure to lucrative markets. Private strategic and private equity (PE) add-on transactions have remained robust as privately owned and PE-backed companies have utilized M&A to penetrate emerging spaces and consolidate competitors. Notably, Arsenal Capital Partners-backed APPLIED Adhesives acquired PRIME Industries, a supplier of adhesives, sealants, and dispensing equipment (April, undisclosed). The transaction has strengthened APPLIED Adhesives’ position in the Adhesive Solutions market.
High-performing businesses in the sector have continued to garner healthy multiples in M&A deals. Capstone expects deal activity to remain strong through year-end as sector players actively realign their asset portfolios, and private equity facilitates add-on acquisitions to bolster their portfolio companies’ positions in high-performing product classes and geographies.
Also included in this report:
- An analysis of commodity prices, discussing macroeconomic conditions that have induced oil price volatility.
- An overview of the key end markets for chemical products, including near-term demand forecasts.
- A segment highlight on the Value-Added Distributors market—a subsector that Capstone expects to become a vital component across chemical supply chains.
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