Why chemical distributors are the ideal choice for M & A? Due to the increasing use of distributors, the growth expectation of the Distribution Department has exceeded the overall growth expectation of the chemical end market.
At present, buyers looking for trading opportunities in the field of chemical distribution are facing huge opportunities. The US $470 billion chemical industry has undergone great changes, especially in the highly decentralized distribution field, which has triggered a wave of M & a boom. In the past five years alone, there have been more than 40 m & as among the top ten distributors in the US.
At present, there is no sign of slowing down, especially in the field of specialty chemicals, where M & A activities have increased steadily recently. 50. Investors are expected to continue to seek more innovative services for their clients in the next five years.
The following analysis is part of our ongoing executive Insights Series on new trends and growth opportunities for us chemical companies. Looking at the short-term and medium-term segment of the chemical industry, we see more and more significant factors in the growth of the supply chain. We also discussed the objectives, advantages and challenges of three strategic paths that dealmakers are most likely to negotiate in their acquisition activities: geography, products and end markets.
Why chemical distributors are the ideal choice for M & A? Due to the increasing use of distributors, the growth expectation of the Distribution Department has exceeded the overall growth expectation of the chemical end market. In fact, the industry is expected to grow at an average annual rate of 4% - 5% over the next five years. In addition to healthy prospects, there are other attributes that can generate the right chemistry between the distributor's key stakeholders and financial and strategic dealmakers:
Key supply chain links. Chemical distributors are an integral part of the supply chain, serving two main types of customers: chemical manufacturers, who need help to reach smaller or more professional customers, and end customers, who are looking for access to products and services. In this area, distributors provide numerous value-added services that chemical manufacturers and end customers cannot or choose not to provide, including transportation, repackaging bulk products into smaller quantities, reformatting products according to customers' specifications, providing on-time delivery and vendor managed inventory.
A more critical service provided by chemical distributors is to provide high-quality advice and application support for end customers with limited R & D capability and light assets. These services are particularly important for small end customers, including specialty chemicals manufacturers. Wise dealmakers should remember that nearly a quarter of specialty chemicals are purchased through distributors - a penetration level that is expected to increase.
Professional chemicals. Specialty chemicals enjoy a stronger growth forecast of 5.0% - 5.5% (more than 4.0% of the distribution industry is expected to grow - 4.5%). Therefore, with the increase of customers and suppliers, professional distributors are able to enter new markets (see Figure 1). Worst of all, the gross profit margin of specialized chemical distribution orders is significantly higher than those of commercial chemicals - complex chemical additives such as up to 40%.
fragment. Despite the trend of integration, there are still more than 1000 US distributors active in the US market, involving professional products and bulk commodities. Even after UNIVAR recently announced its acquisition of nexeo, the world's two largest companies (UNIVAR and Brenntag) have only 40% of the market share. In the field of professional distribution, these companies only have 5% - 10% market share (see Figure 2). Recently, however, many general dealers have begun to turn their attention to specialty chemicals as a means of providing a wider range of products to new and existing customers.
Therefore, the chemical distribution industry is quite attractive to dealmakers. Most companies are looking for attractive new members to increase their chemical distributor portfolio, and they are looking for one of three expansion paths: geographic, product or end market. In order to better understand their acquisition targets, we analyzed the press releases and terms of M & A transactions in the chemical distribution market from 2011 to November 2018. Then, we classify each transaction according to the illustrated strategy.
Each acquisition strategy has different goals, advantages and challenges. The following is a more in-depth discussion of why buyers pursue each acquisition growth strategy and what characteristics of the target company they value most.
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