Chem32 acquired by PQ Corporation: how business owners can capitalise on a post-COVID uptick
Glenn McGuire • Apr 19, 2021
CCD Partners Senior Advisor Glenn McGuire recently advised on the acquisition by PQ Corporation of Chem32, a founder-led supplier of catalyst pre-activation services in the US.
Reflecting on current market conditions and the outlook for the year ahead, Glenn shares his thoughts on how the Chem32 deal is representative of a broader trend as M&A activity picks back up after the initial slowdown caused by the coronavirus pandemic.
As we enter the second quarter of 2021, the impact of the pandemic continues to be widespread. Lockdowns persist to various degrees in the majority of countries around the world, and things are far from a return to anything resembling ‘normal’.
Despite this, however, the current outlook is considerably more positive for business owners considering their strategic options in the near future than it was this time last year, and the reason is relatively straightforward. When the pandemic first hit, a lot of M&A and strategic investment processes were delayed. COVID was an unknown, and reliable forecasting of revenue and business performance was challenging (if not altogether impossible) whilst nobody knew how governments and regulators would respond to the virus.
A year on from that point, while the market remains affected by COVID, buyers now have a much better understanding of the impact of the pandemic, and are consequently better positioned to take it into account in their reviews and valuations. From an opaque starting point in 2020, there is now a data point to reference and COVID is no longer the unknown that it was a year ago, a shift which has generated significantly more buyer confidence.
Strategics evaluating non-core assets in a post-COVID market
The pandemic was a disruptor to the status quo in M&A in many ways, and specifically in the speciality chemicals sector it had a clear impact. Over the past ten years, revenue growth has been strong in the market and it had been possible for companies to downplay the prominence of non-core businesses on the balance sheet.
The pandemic has allowed the sector to take a breather, and many companies have taken the opportunity to re-evaluate their portfolios. This re-evaluation has, for many, included exploration of how best to realize the value of their non-core assets.
The strategics are already reviewing their portfolios and divesting non-core businesses, but they are also simultaneously acquiring to broaden and strengthen their product offerings to customers. We have already seen many examples of this in Q1 2021. I have always been a firm believer in the ‘best owner’ philosophy, and as a result I expect to see a lot of transfer of assets in 2021 as this re-alignment and carve-out of non-core businesses continues.
Opportunities for Owners and Founders
Niche owner-managed in the Specialty Chemicals sector have thus far enjoyed strong growth in a niche markets on the back of significant industry growth in specialty Chemicals. Based on recent consulting engagements and ongoing market data, the case can be made that it is also an optimal time for small business owners to roll up into larger organizations.
Strategic are looking for quality bolt-on opportunities to broaden their core services offering to customers. A challenge for many smaller chemical companies is that they may have many potential growth opportunities, but with the current market outlook realizing those growth opportunities in partnership or as part of a larger organization.
For owner-managed companies interested in monetizing their business, presenting a clear picture of the core business, and scoping out key growth opportunities is the key to maximizing value for both buyer and seller. Consider a few important questions:
- Q1 “What do I have today” - what, realistically, is my current core business offering?
- Q2 “What is my businesses’ potential” – what are the 1-2 growth opportunities where my company has a competitive advantage?
- Q3 “Who is the best owner to realize my growth opportunities” – a buyer's valuation will be based on their ability to realize the growth opportunities.
A year on from the beginning of global lockdowns, recent market dynamics have meant that it is once again it is viable for sellers to engage with prospective buyers without the “question mark” of the pandemic clouding discussions as it once did. Buyers are better prepared and informed to factor in the impact of COVID, and the eagerness for larger firms to capitalize on the disruption to global commerce has created an exciting time to explore potential deals.
CCD Partners is a consultancy specialised in corporate transformations in small and mid-market chemicals and life sciences businesses.
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