EUROPEAN CHEMICALS AND PLASTICS...Despite a relatively slow start to 2018 European chemicals deal activity remained steady, with 233 deals completed. This was despite Europe wide production

EUROPEAN CHEMICALS

AND PLASTICS M&A ACTIVITY AND VALUATIONS

FOR 2018 AND H1 2019

INSIDE:

European and UK M&A activity in 2018

Significant transactions in the European market

Other European activity

Private equity dealmaking European subsector analysis

H1 2019 summary

Prepared by Clairfield partner Orbis Corporate Finance

58

76 72 75 72 69 66 69

4057

7264

5363

0

20

40

60

80

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2016 2017 2018 2019

European Chemicals Deal Volume 2016 - 2018

SECTOR SNAPSHOTEUROPEAN CHEMICALS AND PLASTICS M&A ACTIVITY AND VALUATIONS FOR 2018 AND H1 2019

Chris GregoryPartner

Peter BullAssociate Director

UK and European Chemicals M&A remained steady through 2018

M&A activity within the UK and European chemicals sectors has remained steady throughout 2018completing 233 deals, with a further 116 deals being completed during the first half of 2019. Globaluncertainty surrounding trade tensions and Brexit remain, yet continued profitability among strategicbuyers, an abundance of capital among financial buyers and the underperformance of organic growthstrategies have continued to drive M&A activity as shareholders seek higher returns on investments.

Looking forward, despite continued uncertainty, Cefic, the European trade association for the chemicals industry, is forecasting amini rebound anticipating 0.5% growth in output compared to the 0.5% decline seen in 2018. We believe this will transpire intoboth the UK and European markets with both continuing to consolidate and attract global investors.

Despite a relatively slow start to 2018 European chemicalsdeal activity remained steady, with 233 deals completed. Thiswas despite Europe wide production declining 0.5%, politicaluncertainty, and continuing global trade wars. However,production is forecast to rebound in 2019, and we anticipatethat European M&A activity will follow suit, although much isdependent on the outcome of Brexit negotiations and globaleconomic and political uncertainty.

Year on year, the UK has seen deal volumes remain fairlyconsistent, with 37 deals being completed during 2018compared with 36 in 2017. UK activity was high in comparisonto other major European producers with the UK ranking first interms of deal volume and fourth in value, putting the UKahead of traditional leaders Germany and France who havedominated the European chemicals sector in recent years.

This activity comes as the fractured UK chemicals sectorcontinues to consolidate, as smaller specialist manufacturers,with strong products and intellectual property attractsignificant attention from abroad. We anticipate that smaller,specialist deals will continue to drive the UK chemicals M&Amarket through 2019 and 2020, with acquirers seeking newproducts and technologies as well as geographical presence.

The largest deal of 2018 came from US private equity firm TheCarlyle Group who led a consortium of investors to acquireAkzoNobel’s Speciality Chemicals division for €10.1bn inMarch 2018. The deal came amidst record levels of availablecapital driving high deal valuations, allowing financial buyersto outbid strategic rivals. The deal saw the Dutch multinationalcomplete its extensive restructuring plan to focus on its Paintsand Performance Coatings division, with Speciality Chemicalsset to target growth through innovation and customer focus.

Source: S&P CapitalIQ

Have acquired

For 1.5bn EUR

Have acquired the European

business of

For 5bn EUR

Have acquired

For 10.1bn EUR

Praxair agreed to sell the majority of its European gas businessto Taiyo Nippon Sanso for €5bn in July 2018. The deal wasconditional upon the $90bn merger between Praxair and TheLinde Group which completed in October 2018. Theacquisition by Taiyo Nippon Sanso represented an opportunityto enter the European market and establish a global footprint.

Saudi Aramco completed the acquisition of the remaining 50%stake in Arlanexo from Lanxess for €1.5bn in August 2018.Arlanexo is a Dutch manufacturer of synthetic rubber andelastomers for the automotive, tire, construction, and oil andgas industries. Formed in 2016 as a joint venture betweenSaudi Aramco and Lanxess, the deal comes as Saudi Aramcocontinues to diversify its downstream portfolio and strengthenits energy and chemical value-chain capabilities, whilstenhancing its focus on sustainability in product development.

European and UK M&A Activity for 2018 Significant Transactions in the European Market

82%

10%

5% 3%

81%

12%

5% 2%

Europe United States and Canada Asia / Pacific ROW

The UK chemicals sector has attracted a significant amount ofoverseas interest with 55% of deals involving an overseasacquirer, notably from US, Germany, Italy, and Sweden, asbuyers are lured to niche UK manufacturers. This, combinedwith the fragmented nature of the UK market, means futureUK M&A activity will primarily be driven by opportunities toconsolidate and acquire new specialist technologies andproducts.

This trend was highlighted by Sun Chemicals acquisition ofsecurity and specialist inks manufacturer Luminescence inJune 2018. Family-owned Luminescence manufacture a rangeof products for the security ink market including currency,passports, and brand protection inks. The acquisition providesaccess to Luminescence’s technological reputation as well asproviding a platform for future growth within the $2.7bnsecurity ink market.

European Deals by Acquirer Location 2017 and 2018Source: S&P CapitalIQ

Financial Buyers for European Chemicals

Led Consortium Have acquiredHave acquired

For undisclosed value

Have acquired

For 200m EURFor 270m USD

Private Equity Shows Continued Interest

Data includes UK deals

82%

18%

Strategic Buyer

Financial Buyer

17.6%

82.4%

Other European Activity

The wider European chemicals M&A market meanwhile isdominated by European buyers, with only 19% of deals in2018 involving a party outside of the EU. Closer analysisshows, the main European buyers by number as the UK,France, Germany, and Italy with the US making up the top 5globally.

However, in terms of deal value the US and Japan led the wayhaving been involved in several major cross-border deals. Aswell as previously mentioned multi-billion-pound deals forArlanexo and Praxair, notable deals include the acquisition ofIvy Group by Westlake Chemical, a premier manufacturer andsupplier of chemical products, for $270m. The acquisitioncomplements Westlake's existing compounding division,adding new technology and products to its existing portfolio aswell as reinforcing their global presence.

Sinochem International also completed the acquisition ofSpanish ABS resin manufacturer Elix Polymers from SunEuropean Partners for €200m. The integration of ElixPolymers into the Sinochem group will allow them to positiontheir brand quickly into the Asian and Chinese markets, whilststrengthening its stance in the European and Americanmarkets. Sun, meanwhile are looking to identify furtherinvestments in Spain.

Private equity, funded by record levels of capital, continued toplay an active role in the European chemicals sectorcompleting 41 deals during 2018. While the volume of dealsshows little growth compared to previous years, value hasincreased significantly due to the completion of several majorEuropean deals including Carlyle’s €10.1bn acquisition ofAkzoNobel’s Speciality Chemicals division, enabling Carlyle toexpand their global presence. As well as this, Rhone Capital’smade a €700 million agreement to acquire 45% of civilexplosives manufacturer MaxamCorp. It was thought that highvaluations would deter private equity but this has beenaddressed by funding being sourced on a consortium basis inthe case of the AkzoNobel transaction.

Led Consortium Have backed the MBO of

Have acquired a 45% stake in

For 700m EUR

Have acquired

For undisclosed value

For undisclosed value

Private equity within the UK meanwhile accounted for 15% ofcompleted transactions. Notable deals included StrategicValue Partners (SVP) acquisition of polyurethane foammanufacturer Vita for an undisclosed fee. SVP aim to supportVita’s growth plans through maintaining and developingcustomer partnerships as well as driving the strategic directionof the company. The UK also witnessed a number ofmanagement buyouts including that of Kent based galvanisingand powder coating specialist British Metal Treatments fromAIM listed Camellia.

European Sub Sector Analysis – 2018 H1 2019 Summary

At a European level, the plastic demand is at 49 million tonnesand continues to maintain its stable trend and demand.Polymers continued to dominate the European Chemicalslandscape accounting for 34% of completed deal volume in2018. Activity is being driven by large corporates diversifyingto include downstream operations. This included thepreviously discussed acquisition of Arlanxeo by Saudi Aramco.

Another notable performer included the commodity chemicalsub-sector, accounting for 14% of completed deals. Thisindicates there is still an active M&A market for commoditybusinesses as well as the more specialist niche manufacturers.Specialist sub-sectors such as agri chemicals have seen dealvolume increase over the past year, completing 28 dealsduring 2018, compared to an average of 19 over the previousthree years, demonstrating the continuing growth potentialwithin the sub-sector.

One notable agri deal was the agreement for BASF to acquirethe seeds and crop protection businesses of Bayer in a dealworth €1.7bn. The deal follows from a previous agreementreached between both companies in 2017. The transactioncomplements BASF’s crop protection business andbiotechnology activities, adding new capabilities as well as aplatform for growth. The transactions allowed Bayer to divestprior to its acquisition of Monsanto in June 2018.

34%

14%12%

12%

11%

8%

5% 4%

Polymers Commodity ChemcialsAdhesives, Coatings and Resins Agri ChemicalsOther DistributionDyes, Inks and Pigments Diversified

Led Consortium Have acquiredHave acquired

For 3bn EUR

Have acquired

For 23m GBPFor 150m USD

Orbis is a mid-market corporate finance boutique advising ona wide range of M&A transactions covering the Industrialssector, in addition to food & consumer, technology, media &telecoms, and healthcare. Orbis also has an active investmentportfolio held through its investment vehicle Intrinsic Equity.

If you are considering your strategic options for enhancing thevalue of your business or your client’s business, please contacteither Chris or Peter.

About Us Contact

Chris GregoryPartner.

T: +44 (0) 121 234 6072E: [email protected]

Peter BullAssociate Director.

T: +44 (0) 121 234 6078E: [email protected]

Despite continued trade tensions, slowing economic growthand the political uncertainty surrounding Brexit, Europeanchemicals M&A activity midway through 2019 has beenstrong, completing 116 deals during H1, an increase of 19 overH1 in 2018. The UK sector performed well completing 14 dealscompared to 13 in 2018, falling only behind France in terms ofvolume.

Deal value was also robust with several large European dealsbeing completed, including the €3bn acquisition of themethacrylates business of Evonik Industries by private equityinvestor Advent International. Advent see this as anopportunity to support the independence of themethacrylates business, pursuing long term internal growthstrategies. Umicore has also reached an agreement to acquireFreeport Cobalt’s cobalt refining and cathode precursoractivities in Finland for $150m. The acquisition represents akey development in the creation of an integrated batterymaterials value chain for Umicore.

Looking forward to the rest of 2019 the challenges of 2018show little sign of waning, yet we believe several keys factorswill continue to drive deal volume for the rest of the year. Inthe age of the circular economy and digitalisation,corporations are increasingly seeking to become more digitaland environmentally-focused. Niche manufacturers, therefore,will prove attractive scalable opportunities for largercorporates looking to complement organic growth throughacquisitions. Corporates are also streamlining their productportfolios through divestment and subsequent acquisitions.The increasingly active private equity market will continue touse this as an opportunity to support independent chemicalalong with follow up bolt-on acquisitions.

Amidst these factors and our own experiences, clients arecontinuing to attract premium prices, in particular frominternational strategic buyers. We, therefore, conclude that itremains an ideal time to consider the sale of your business.

Chemicals Deals by Sub Sector – 2018

Industrial Technology, Media and Telecoms

Orbis is an independent corporate finance advisory firm, working with business owners, management teams and

investors to advise them through every aspect of corporate finance.

The partners have over 100 years of deal-making experience and combine their broad network of global

relationships with deep sector knowledge and investor skills to deliver a specialist M&A experience.

Orbis is the UK partner for Clairfield International, a global investment bank, offering clients access to over 400

corporate finance professionals situated in over 20 countries across the globe.

Orbis Partners : SectorsExperience across a range of sectors

Business Services Healthcare

Company Sales Extensive mid market M&A expertise and experience across the team. International reach – over 20 countries and growing. Over 90% of all sale mandates involve an overseas party.

Acquisition Support Listed and private clients. Research and origination - internal research team and tools. Strategic and financial assessment. Deal management.

Due Diligence Experienced and informed advice. Extensive experience within the UK and of international transactions. Tailored reports. Partner led.

Management Buy Out Deal leadership and fund raising. Align interests with management team. Co-investors on 15 deals.

Capital Raising Supporting existing business to fund development. Supportive investor bringing focus on value creation. Co-investors on 3 deals.

Business Improvement Independent advice and planning strategy led by sector insights. Turnaround and profit improvement credentials. Leading the team through uncertainty whilst developing a game plan. Co-investors and principal.

Orbis Partners : ServicesA complete range of M&A services providing a wealth of experience to ourclients

Food & Consumer

Leading independent M&A advisor for midmarket deals

Clairfield International was founded in 2004 by four European M&A boutiques and has since expanded to encompass all major economies worldwide with the addition of knowledgeable partners in key markets.

Our strengths are our entrepreneurial spirit, local expertise, industry know-how, and close bonds among all team members spanning the globe.

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EXPERTISE BACKED BY

80% OF OUR MANDATES

ARE INTERNATIONAL

300+ TEAM MEMBERS

30% DEALS CLOSED WITH

INTERNATIONAL BUYERS

70 INDUSTRY ADVISORS

22 COUNTRY TEAMS

ACROSS THE WORLD

Top 20 IN WORLDWIDE

MIDMARKET RANKINGS

Top 10 IN EUROPEAN

MIDMARKET RANKINGS

130+ DEALS CLOSED ANNUALLY

EUR 20 billion

CUMULATIVE DEAL VALUE

LAST 5 YEARS