CCD Partners - Chemical Transformations

Manali acquires PennWhite

Mon, 05 Dec 2022 20:16:48 GMT

Market leading provider of formulated chemical process aids and foam control, PennWhite has been acquired by Manali Petrochemicals, part of the AM International Holdings group.

About PennWhite

Penn Globe Limited is a global market leader in formulated chemical process aids, and a specialist in industrial, wastewater treatment, and food industry foam control. Trading as PennWhite, the business offers a portfolio of high-performance products for a wide range of applications to customers in over 35 countries.

About Manali Petrochemicals

Manali Petrochemicals Limited ( MPL ) is a leading petrochemical manufacturer based in Chennai, India. It markets propylene glycol and polyols and is part of the Singapore-headquartered AM International Holdings ( AMIH ) group.

CCD Partners’ role

Matt Dixon, Roger Green, John Marcantonio, and others from CCD Partners performed a tailored acquisition search and advised MPL and AMIH on the acquisition.

John Whitehead, Managing Director, Penn Globe Ltd, commented:

“We are delighted to be a part of Manali Petrochemicals and AM International, Singapore. This will enable us to expand and strengthen our footprints in Asia and grow our portfolio to cater to a globally diversified customer base.”

Ashwin Muthiah, Founder and Chairman, AM International, commented:

“The addition of Penn Globe Limited is an important step in the execution of our growth strategy. It gives us access to world-class products, technology, and a talented team as a strategic advantage. It is in line with our inorganic expansion vision that fosters a global focus, customer-first mindset, and culture of innovation. It will help the Company increase its share in the high-demand premium customer segments that command better pricing opportunities. At MPL, we are committed to investing in future-ready technologies and innovation driven solutions.”

Hugo Chardon, Head of Strategy EEA, AM International, commented:

“CCD Partners has been a great partner to have by our side during the acquisition process. They have shown pro-activity, flexibility and great knowledge about the industry. I would personally recommend CCD Partners and would be happy to work with Matt and his team again in the future.”

MBO of gasworld

Fri, 02 Dec 2022 13:57:08 GMT

Global source of industrial gas news, views, and debate, gas world has been sold by John and Karen Raquet to the senior management team in an MBO, backed by Mobeus Equity Partners.

About gasworld

gas world was founded in 2003 by John Raquet, who set out to provide more transparency in the technical world of industrial gases, through the introduction of information channels that did not really exist. Led by Martyn Hammond, the management team has steered gas world to continued success over the past five years, driving growth of the “ gas world” brand globally, as well as recently introducing H2 View to address the new and important energy transition role that hydrogen will make.

About Mobeus Equity Partners

Mobeus is an investor that provides £2m to £15m to entrepreneurial, fast-growth, UK SMEs across all sectors.

CCD Partners’ role

Jim Keeling and Harry Knight, and others from the team at Corbett Keeling, advised John and Karen Raquet on the sale of gas world to its management team. CCD Partners introduced Jim and Harry to John and Karen and provided other support for the project from our network of specialty chemicals advisors.

John Raquet, Founder and former Chairman of gasworld, commented:

“We wanted to create a global community for our industry and believe that we have achieved this over the (almost) 20 years. It would be right to comment that we have travelled around the world – to all continents – providing platforms for debate, learning and networking. More importantly we want to thank all our staff for their commitment and dedication to produce quality information and services for the global industrial gases community to benefit from. The company remains in good hands with a combination of experience and ambition to take gas world on to even greater success.”

Martyn Hammond, New CEO of gasworld, commented:

“It is fitting that on the eve of the 20th anniversary of the gas world brand, we’re renewing our commitment to high-quality content, business intelligence and our longstanding partnership with the industry and its stakeholders, all around the world. We’re passionate about the industry and keeping our readers and supporters at the heart of everything we do. ”

Jim Keeling, Chairman and CEO of Corbett Keeling, commented:

“We are delighted to have advised John and Karen on the sale of gas world to their talented management team. Many congratulations to all!”

Richard Babington, Partner at Mobeus Equity Partners, commented:

“We are delighted to have completed Mobeus V’s latest investment into GWGI to acquire gas world. The business’s talented team has plans to further diversify the business’ service offering and continue the rapid growth trajectory of its leading, sustainability focused, H2 View brand. We look forward to working alongside the team in executing their exciting strategy.”

LongAcre Group Invests In PolyBlend

Tue, 13 Sep 2022 11:24:39 GMT

About PolyBlend

Polyblend UK Ltd is one of the market leaders in PVC based polymers. We are experts in manufacturing a comprehensive range of liquid plastisol and dispersion systems, complemented by our Speciality Distribution business supplying plasticisers, resins and PVC additives.

About LongAcre Group

Longacre is a group of highly specialised, technical products and services companies focused on attractive and growing B2B end markets. Longacre Group employs over 600 people in 17 locations across Europe, US and Asia with turnover in excess of £130m in our core sectors of: Technical Manufacturing, Business Services, Speciality Chemicals, and Healthcare Products and Services.

CCD Partners' role

Steve Mothersole advised Longacre Group on its talent options and subsequently supported recruitment of new leadership for Polyblend.

Mark Stewart MD of Polyblend, commented:

“We see this as a hugely positive chapter in Polyblend’s history. The involvement of Longacre Group will bring new energy to the business, helping it to build on its already strong foundations. "

Stani Schmidt-Chiari, of Longacre Group, commented:

“We are excited by the opportunity to work with the Polyblend team to grow the business in its core markets as well as exploring avenues for acquisitive growth.

Matt and Stephen, thank you for helping us find such a great Chief Executive candidate for Polyblend. Many thanks from the team at Longacre Group."

Selected information, quotes, and logos reproduced from the original press release found here - LINK

GFBiochemicals raises €15m

Thu, 05 May 2022 10:49:36 GMT

About GFBiochemicals

GFBiochemicals is a sustainable chemicals company that produces levulinic acid derivatives at commercial scale directly from biomass. Having perfected its technology, product, and certification, the company is entering a new phase of commercialization.

About Sofinnova Partners

Founded in 1972, Sofinnova Partners has backed more than 500 companies over 50 years, creating market leaders around the globe. Today, Sofinnova Partners has over €2.5 billion under management, focused on breakthrough innovations that have the potential to solve the world’s most pressing problems.

CCD Partners' role

Matt Dixon, Peter Dixon, Roger Green, and Michelle Lynch advised GFBiochemicals on its fundraising options and strategy, made introductions, and coordinated the outreach process.

Mathieu Flamini, GFBiochemicals CEO, commented:

“GFBiochemicals is tackling one of the planet's most pressing and yet unrecognised challenges: how we make chemicals sustainable and non-harmful. Too many of our products are made with non-biodegradable, toxic chemicals, which cause environmental damage and affect people in their everyday life. We believe you cannot compromise on the planet and you should not compromise on performance. We hope to inspire and support others to accelerate their transition to green chemistry.

I enjoyed collaborating with CCD Partners, a team of very experienced and knowledgeable people."

Guillaume Baxter, Sofinnova Partners, commented:

“There is a huge opportunity to transform the legacy chemicals industry and shift society away from its reliance on petrochemicals, Mathieu's team is at the start of an exciting new journey. With a great technological foundation and growing commercial traction, we're convinced they have what it takes to succeed."

Guillaume Sarlat, Sparta Capital, commented:

“Our current use of chemicals is not sustainable. The problem is so urgent that it is now a UN Sustainable Development goal to reduce deaths and illness from hazardous chemicals. We are backing Mathieu and his team because they have found a transformational alternative to address this problem. GFBiochemicals' innovative business approach is better for the planet and human health."

Selected information, quotes, and logos reproduced from the original press release found here - LINK

Shipping Clerk to CEO

Wed, 20 Apr 2022 13:29:29 GMT

In the latest episode of the Chemical Transformations podcast , CCD Partners' Managing Partner Matt Dixon speaks with Ted Clark, former President and CEO of Royal Adhesives & Sealants, discussing his new book "Shipping Clerk to CEO: The Power of Curiosity, Will, and Self Directed Learning”.

The book tells the story of Clark’s remarkable career journey from entry-level worker to CEO of a $240m chemical company by the age of 42.

Beginning as a shipping clerk, Clark climbed the ranks to become President & CEO of Products Research & Chemical Corporation (PRC), a global leader in aircraft and construction sealants and coatings. Clark drove 20% profit growth across the firm prior to a sale to PPG Industries in 1999.

Four years later, Clark began the private equity-backed journey to grow platform company Royal Adhesives & Sealants into one of the top 10 adhesives and sealant companies in the world, a route which involved revenue growth from $35m to $700m, included 19 acquisitions, and led to the successful sale of the business to NYSE-listed H.B. Fuller.

In his book, Clark highlights a number of key principles which have guided both his personal career and his business success, sharing insights as valuable to ambitious professionals at the start of their careers as they are to seasoned leaders.

Critically, Clark stresses the importance of maximising performance and efficiency in every position on the career path towards senior management and approaching each role as “CEO” of the corresponding function within the business. With this mindset, Clark was able to optimise the processes, output, and impact of each job he held, creating a reputation and establishing contacts within the organization that saw him rapidly promoted to exert greater influence over a broader field of responsibility.

He also highlights the value of staying ‘ahead of your closest competitor’ as a performance strategy both in career development and in business, encouraging the adoption of an ongoing benchmarking process which targets performance perpetually beyond the level of the next-closest challenger, ensuring recognition as the top performer among peers and commercial competitors alike.

Clark also has many lessons for aspiring leaders, especially those striving to secure senior corporate management opportunities early in their careers, tackling subjects including:

What makes underdogs succeed?
How can you avoid the "experience trap"?
What does it take to think on your feet?
How do you mend broken work relationships?
How do you manage workers twice one's age?

To watch the full podcast discussion between Ted Clark and CCD Partners’ Managing Partner Matt Dixon, click here .

“Shipping Clerk to CEO” is available on Amazon in both paperback and Kindle edition.

Esteve purchases UQUIFA API manufacturing facility in Barcelona

Fri, 04 Feb 2022 12:48:30 GMT

Esteve Química purchases one of the UQUIFA Group's two pharmaceutical fine chemicals plants in Barcelona.

About UQUIFA

UQUIFA is a manufacturer of Active Pharmaceutical Ingredients (APIs) and intermediates for the pharmaceutical and animal health industries globally.

The LLiçà de Vall site occupies a surface area of 21,176 m2, a workforce of 89 people, and a production capacity of 160 m3 of reaction volume. It currently produces advanced intermediates and active pharmaceutical ingredients, which are exported to Europe, the United States, Latin America and Asia.

The facility meets Good Manufacturing Practices (GMPs) and holds the corresponding AEMPS (Spanish Health Agency) certification, as well as ISO14001:2005 certification covering environmental aspects. It is also audited by several international regulatory authorities such as the Korean FDA and the Japanese PMDA.

About Esteve

Esteve is a Spanish international pharmaceutical company headquartered in Barcelona. The company operates as a collection of organizations that span various areas related to healthcare. This includes Esteve Química; Esteve Pharmaceuticals; ISDIN (skin care), an alliance between ESTEVE and the PUIG Group; and Esteve Teijin Healthcare (ETH) in the field of home respiratory therapy with the Japanese group Teijin Pharma.

CCD Partners’ role

CCD Partners’ Matt Dixon, Peter Dixon, and Matthew Wise advised UQUIFA on this carve-out and divestment project. The project began with an initial scoping and strategic review phase, before launching a formal divestment process with a number of interested parties, and driving the project through due diligence to completion.

Staffan Schüberg, CEO of ESTEVE, commented:

''This operation is an excellent opportunity to increase our industrial capacity and serve our customers and patients worldwide, to improve people's health and be true to our purpose. We are advancing towards our vision of becoming an international proprietary specialty pharma and with this opportunity we will be able to expand our services to the global specialty pharma market''.

Matt Dixon, Managing Partner at CCD Partners, commented:

“We were engaged to find a new home for one of UQUIFA’s Spanish sites. I’m pleased to say we introduced several parties with strong interest and strategic rationale in acquiring the site and conducted a private auction process before settling on the best new owner, Esteve Quimica .”

Saurabh Gurnurkar, Managing Director of UQUIFA Sciences, commented:

"The UQUIFA team is pleased that the LLiçà de Vall site will get a committed owner with the capacity to develop it to its full potential. This divestment will help UQUIFA streamline our Spanish operations in line with our strategic goals and better align with our customers' evolving needs.

My thanks to everyone on the CCD Partners team for getting this deal to the finish line. It was a pleasure working with each of you every step of the way, from the initial scoping exercise all the way through to final execution.”

Vertellus acquires Polyscope Polymers

Fri, 04 Feb 2022 12:29:13 GMT

Specialty materials manufacturer Vertellus has acquired Polyscope Polymers B.V., a global leader in specialty additives for coatings, electronics applications, and engineering polymers.

About Polyscope Polymers

Polyscope is a global leader in the development and production of styrene maleic anhydride (SMA®) copolymers necessary for product applications across the electronic, automotive and specialty coatings & ink markets. With its innovative technology and engineering capabilities, Polyscope is well-positioned to capitalize on growth in these expanding markets. Polyscope operates a state-of-the-art production facility strategically located in Geleen, The Netherlands, and serves as a key partner to more than 300 customers across over 35 countries.

About Vertellus

Vertellus is a leading global manufacturer of specialty materials and key ingredients for fundamental consumer necessities. Vertellus technology can be found in personal care products, pharmaceuticals, medical devices, nutraceuticals, food & beverages, performance coatings and transportation additives. Headquartered in Indianapolis and founded in 1857, Vertellus has more than 1,300 employees across 15 international research and manufacturing facilities.

CCD Partners’ role

Achim Mauruschat and Rüdiger Funke, senior advisors to CCD Partners, and others from the team at JF Chemical Associates, advised Polyscope’s management on this transformational project. CCD Partners introduced Achim and Rüdiger to Polyscope and provided support for the project.

John Van Hulle, CEO of Vertellus, commented:

“Polyscope adds a complementary portfolio of high-quality solutions, a track record of innovation and a world-class global platform in attractive end markets to Vertellus. Together we will serve our customers with a unique product offering and our shared value-driven approach. I am pleased to welcome the Polyscope team to Vertellus.”

Achim Mauruschat, Senior Advisor to CCD Partners, commented:

“ We were first selected to support management in identifying strategic options moving forward. Alongside Rothschild & Co., we have then provided advice and contents in the development of much of the material to position Polyscope in the best possible way for strategic options – emphasizing the strong potential of the company’s many solutions and activities. Futhermore, we have supported Polyscope in prioritizing and selecting final candidates as well as in identifying and promoting synergies with potential strategic partners.”

Patrick Muezers, Polyscope CEO, commented:

“Vertellus is the ideal partner to support the company’s next phase of growth and innovation. We will be able to leverage Vertellus’ global resources, capabilities and strong market leadership to better serve our customers and bring our high-quality products to additional customers throughout our markets.”

Thomas Chadwick, Principal at Pritzker Private Capital, commented:

“This highly strategic acquisition strengthens Vertellus’ global platform and positions the combined company for growth. We look forward to continuing to support the Vertellus and Polyscope teams as they serve customers with innovative, high-quality products and services.”

KKR invests in Biosynth Carbosynth

Mon, 01 Nov 2021 10:47:06 GMT

About Biosynth Carbosynth

Biosynth Carbosynth is a fully hybrid Research Products, Life Sciences Reagents and Custom Synthesis and Manufacturing Services Company with global research, manufacturing and distribution facilities. They are the supplier of choice for many in the pharmaceutical, life science, food, agrochemical, cosmetic and diagnostic sectors and manufacture and source a vast range of chemical and biochemical products.

About KKR

KKR is a leading global investment firm that offers alternative asset management and capital markets and insurance solutions.

CCD Partners’ role

CCD Partners’ Gunnar Staaf, Peter Dixon, Roger Green, and Matt Dixon advised KKR on its investment in Biosynth Carbosynth, providing techno-commercial due diligence and strategic advice.

Urs Spitz, CEO and President of Biosynth Carbosynth, commented:

“I would like to thank Armira for our trusting and very successful partnership over the last seven years. I am excited to welcome KKR as our future strategic partner as they have the industry experience, international network, and resources to help us realize our vision of becoming a global platform. KKR’s strategic partnership will enable us to continue to scale the business while retaining the best-in-class product quality, science-led focus, and industry-leading expertise for which our customers have come to know us.”

Kugan Sathiyanandarajah, Managing Director at KKR, commented:

“Reliable, high-quality supply of critical reagents is central to the effective and safe development of diagnostics and therapeutics for the benefit of patients worldwide. We are excited to be working with Urs and Biosynth Carbosynth’s impressive management team, and believe that there is a significant opportunity to build Biosynth Carbosynth into a leading life sciences tools platform."

Christian Ollig, Partner at KKR, commented:

“This strategic partnership with Biosynth Carbosynth is a fantastic addition to the KKR family, and another example of our strong footprint in the DACH region, our deep expertise in healthcare, and our ability to support family-owned businesses as they move into a new phase of development. Urs is a visionary leader who is highly regarded in Switzerland and beyond, and we are delighted to become part of the company’s exciting future.”

Charnwood Molecular’s journey from university spin-off to high-growth, PE-backed integrated drug discovery leader

Tue, 12 Oct 2021 06:29:00 GMT

Steve Allin co-founded Charnwood Molecular with Phil Page in 1998. 22 years later, the business has evolved dramatically from its origins as a spinout of Loughborough University. Backed by a partnership with Synova Capital, the company is now preparing to move into a former AstraZeneca research facility and has already completed its first M&A deal, acquiring Aurelia Bioscience in summer 2021.

CCD Partners’ Matt Dixon spoke with Steve about the journey from full-time academia to running a high-growth market leader.

MD: Can you provide some quick background on Charnwood’s corporate profile?

SA: We were founded in 1998 as an academic spin-off but have developed in the last 5-6 years into fully-fledged drug discovery and development organization, with services spanning discovery biology, computational and medicinal chemistry, through to chemical development. This means we can do small-scale medchem synthesis of specific target compounds, produce up to tens of grams of material, and perform early process R&D where we develop scalable routes for producing multi-kilo amounts. These routes can then be provided via tech transfer packages to larger cGMP manufacturers.

Our client base ranges from VC-funded start-ups or other university spinouts through to established biotech and small pharma, though we do have some big pharma engagements as well.

In 2019 Charnwood worked with CCD Partners to secure investment from Synova Capital. What were the drivers in seeking a private equity partnership?

For the first 10-15 years of operation we were probably a typical founder-led organization. In hindsight, we could have grown the business more quickly, but myself and co-founder Phil Page were both full-time academics with lots of other things going on. We had reached a point where we recognised that creating something that’s going to be around long term and become a major player in the industry, would benefit from external expertise.

We were ambitious about where we wanted to go with the business, but we knew we needed the experience of that type of growth to support the plans that we already knew we could deliver if we had the right facilities and backing.

What gave you confidence that Synova were the right team to partner with?

When we met the Synova guys it was clear that we got on personally with them, but also that they understood the marketplace and the sector we were in. They were just as enthusiastic and ambitious in terms of what we could do together, and they were happy to allow us to drive the direction. Of course, there’s a business plan and they’re ambitious, and we have to hit the targets that have been set, but the experience to date has been enjoyable and felt like a real partnership.

In fact, as founder of a business with its roots in academia and science, it’s been quite an eye-opener in terms of KPI-tracking and cashflow and other business metrics that are really interesting and important in a growing business, but don’t come naturally to an academic founder.

What have been some of the major developments in Charnwood since the investment?

Since we closed the deal, we have started to deliver on a business plan that has seen us expand our service lines within the business. For instance, we’ve added computational chemistry and the recent acquisition of Aurelia Bioscience gave us an important discovery biology platform.

We’ve also started to look at what’s required to deliver the plan in terms of future expansion, so we’ve recently agreed to take on a former AstraZeneca research facility at Charnwood Campus in Loughborough. With its capacity to house 180-200 scientists, it’s a significant growth step up from our current staff of 60 research chemists.

The building should be delivered later this year, and at that point we’ll move to become a single site operation, so the facilities that we have in other locations and the teams there will come together in one site at a world-class research facility including the biologists and computational chemists. We’ll then be a standalone discovery and development organization running all the way from discovery biology to process R&D chemistry.

How have clients responded to Charnwood’s expanded commercial offering?

The reaction has been really positive, and we’re increasingly asked to deliver quotes and design projects around integrating computational chemistry, biology, and medicinal chemistry.

For both us and the client the added value is that because of the chemical development and process research capability that we’ve got, we can start to look at that transfer of client technology and capabilities that we’ve developed through to delivery of around a kilo of material.

For some clients that seems a long way away, but in reality it isn’t, and the earlier clients start to think about the development of a successful candidate, the better for them.

We’ve always known that was a USP that Charnwood had, and it’s working really well for us in terms of a market offering.

Along with the capital investment and acquisition, what additions have you made to the Charnwood team?

It was important that after the deal we brought on people that had experience of rapidly growing businesses.

For example, we appointed Trevor Nolan as CFO, and the financial oversight he offers is important not just for the investors, but for us operationally as we grow the business. Trevor brings a high degree of credibility and control over finance but is also a scientist himself, which helps so that when we talk about what we want to do. Trevor sees it as more than just a group of numbers, so he’s been incredibly supportive – not just in supporting the operational staff in the business to achieve their goals, but actually because of his scientific background in supporting the ambitions with the investors.

We also brought in John Handley as Managing Director, who brought valuable experience as COO in a related business in the sector. John has been incredibly helpful and useful in planning operational change within this business, again on this rapid growth trend. He was also really pivotal in working towards the acquisition of Aurelia Bioscience.

How was the experience of making your first acquisition?

It was relatively smooth from our side, in part because of the experience brought by the Synova team. With that said, my presence still in the business was also important for the deal, as Gary Allenby and Cathy Dodgson, the founders of Aurelia, had similar questions and concerns to the ones I’d faced 18 months previously.

We’ve been through similar growth stories, so we were able to work together to a suitable outcome that gave Gary the confidence that we shared the same ambition for growth, not just in terms of numbers and biology but in terms of service and wanting to be science-led as we enter this new 3-4 year plan together.

It’s been a really good acquisition for us, and it’s settling into a combined business really well.

It enhances our service offering, so we can now truly deliver integrated drug discovery projects, whereas previously we were partnering for that sort of approach.

What has the transition been like for you as a founder, taking Charnwood to the next level of growth?

I began my career as an academic scientist and gave lectures at Loughborough. If anyone had suggested to me when we stared the spinoff company in 1998 that we’d be moving into a former AstraZeneca research facility in future, I’d have thought they were crazy!

But that’s the nature of the growth that we’ve created, and it’s all built on the excellence of the growth that we provide as a service.

In terms of the transition, prior to the deal with Synova, Charnwood was a relatively small business of around 50 total staff. At that size as a business owner you can keep a lot of the key information around capacity, business development and profit margins in your head. But, obviously, it’s not a great thing to run a company that way – that information needs to be documented, even if only from a risk management perspective. After the deal, it’s been an interesting challenge to move to systems where there’s a wider understanding across the senior management team of things that are important to the business that we need to track, we need to keep on top of, not just operationally but financially, for an ambitious growth plan.

Finally, for any other founders at a similar decision point to where you were with Charnwood last year, what key advice would you give?

Having been through the process with CCD not too long ago, finding the right backers that you are comfortable with is high on the list.

It’s key to get on with your investors on a human level and to talk a similar language, but you also need to share the same vision. Are they enthusiastic about the business they want to get into, are they excited about what you can build together?

That synergy is important, but from a founder perspective it’s also about realising that you will most likely get to a point with the business where you just have to be honest with yourself about what it is you can deliver with organic growth compared with rapid expansion and an injection of expertise.

Along with Synova’s capital, we’ve bolstered our senior management team with appointments of CFO, MD, and more recently chief commercial officer roles, and the new team members have pushed the business on, without a doubt.

Charnwood was certainly at a crossroads in terms of growth potential, and we don’t regret any of the steps of that we’ve taken to this point in time.

It was the right thing for Charnwood, for the founders personally, and for our staff. They can see the ambition the company has, and they’re really enthused about being on that journey with us.

Aspire Pharma sold to H.I.G. Capital

Fri, 24 Sep 2021 10:26:36 GMT

About Aspire Pharma

Aspire was founded in 2009. Aspire has an asset-light business model that focuses on R&D, business development and sales and marketing, while outsourcing manufacturing and distribution to specialist third parties. For more details see www.aspirepharma.co.uk.

About H.I.G. Capital

H.I.G. is a leading global private equity and alternative assets investment firm with $45 billion of equity capital under management. Based in Miami, and with European offices in London, Hamburg, Madrid, Milan, Paris, and U.S. and Latin American offices in New York, Boston, Chicago, Dallas, Los Angeles, San Francisco, Atlanta, Bogotá, Rio de Janeiro and São Paulo, H.I.G. specializes in providing both debt and equity capital to small and mid-sized companies.

CCD Partners' role

Andrew Dean, senior advisor to CCD Partners, and others from the teams at Present Value and CCD Partners, advised Aspire Pharma on this transformational project.

Graham Fraser-Pye, Chairman of Aspire, commented:

“I am very pleased to welcome H.I.G. as a key investor in the future of Aspire Pharma. Since our foundation in 2009, we have grown rapidly and consistently through our astute strategic choices and extensive development know-how. H.I.G., with its significant financial and geographic reach, will help us maintain our impressive growth trajectory and take Aspire into another exciting phase for its people and customers. We remain committed to the development and supply of innovative products and medicines that offer value to our customers and make a difference to the lives of patients.”

John Harper, Managing Director at H.I.G. Capital, commented:

“We are delighted to be supporting Graham and his team to further build upon Aspire’s success. The Company’s track record of identifying, developing and launching niche pharmaceutical products, coupled with H.I.G.’s international presence and history of supporting organic and acquisitive growth in its portfolio companies, underpins an exciting next chapter for Aspire."

Net zero strategies of top European speciality chemical companies

Thu, 22 Jul 2021 08:43:44 GMT

CCD Partners Senior Advisor Dr Michelle Lynch analyses the net zero roadmaps of five of Europe's leading speciality chemical companies, exploring the details of their strategies and evaluating the real-world impact of their commitments to climate neutrality.

Decarbonisation Strategies

Europe has committed to being the first climate neutral continent in the world by 2050.

This means that in less than 30 years’ time, the majority of chemical products will not be made from fossil fuels. Considering that it has taken over a century to build and grow a fossil fuel economy, transitioning to renewables in the given timeframe for NetZero is a major challenge for the chemical industry. Many large multinational chemicals and industrial corporations have already disclosed their NetZero roadmaps, plans and strategies and in this article we look at what those are and how they compare.

First of all, it is important to understand which NetZero toolkits are available to the chemical industry in order to remove fossil fuels from its supply chain. For NetZero to have the desired impact on meeting the climate neutral goals, the entire value chain must be decarbonized. Therefore, the industry is looking to switch to low carbon feedstocks, energy efficient chemical or biochemical transformations, renewable utilities for the manufacturing processes and carbon-neutral transport for delivery of feedstocks and intermediates, as well as final products to the customer. This article focuses on the chemical feedstocks and transformations.

Four main approaches are available:

Use of biobased feedstocks and fermentations
Use of recycled waste e.g. plastics, rubber, textiles and food
Indirect electrification of chemical processes
Use of waste carbon dioxide and green hydrogen (CCU/PtX)

Carbon capture and storage (CCS) has not been included in the above list, because it does not decouple chemicals production from fossil fuels and it is not a circular economy approach. It will be required as a negative emissions technology (NET) however this is outside the scope of this article.

In order to completely decouple from fossil fuel production, all organic chemicals will need to be made from green hydrogen produced via water electrolysis and carbon dioxide captured from flue gas streams and, further along, from the air (direct air capture – DAC). This toolkit is referred to as “Power-To-X” because it takes the energy from electrical power and transfers it into one or more organic chemicals, energy carriers and fuels. Combining PtX with carbon dioxide capture and utilisation (CCU) is a powerful method for decarbonisation. It is envisaged that in future, as renewable electricity costs are reduced and electrolysers meet their key performance targets, PtX will be a viable route compared with traditional fossil fuel technologies. The transition to PtX as the main tool for chemicals production is forecast to accelerate after 2030 when electrolysis is operating at multi-GW scale and carbon capture technology is economic at a suitable scale for CCU.

The use of biobased feedstocks has been growing for the last two decades, and many fossil based plastics can be replaced either with a direct drop-in, e.g. bio-PET or a biobased alternative e.g. polylactic acid (PLA) or polyhydroxyalkanoate (PHA). The use of recycled waste has become much more prevalent – plastics and rubbers can be recycled either mechanically to make new plastic bags for instance, or chemically to make a pyrolysis oil which can then be used to make fresh monomers e.g. ethylene and propylene. Textiles and food can also be chemically recycled and many olefins producers are trialling the use of pyrolysis oil derived from a mixture of waste products. In order to mitigate the production of long-lasting plastic waste, companies have produced biodegradable products, and some of these are made from biobased feedstocks.

Calculating the carbon footprint of both waste and bio-derived goods is not straightforward, and the wider lifecycle impacts also need to be considered to ensure that there is not more harm overall being caused to the environment e.g. due to deforestation or soil erosion. The social impacts also need to be considered. These factors and others form the basis of the 17 United Nations Sustainable Development Goals (SDG) as shown in Figure 1 below. The challenge for chemical producers is to ensure that their pathways to NetZero also align with the UN SDG and at this stage, many companies are looking at how to manage the task of collecting lifecycle assessment (LCA) data across many hundreds and thousands of chemical products in their portfolios. Then once they have this data, they will be in a more informed position to decide on the best methods to remove fossil fuels from their supply chains. The remainder of this article looks at the NetZero strategies of five key speciality chemicals companies who have announced their NetZero and decarbonisation plans.

Figure 1. The United Nations Sustainable Development Goals

Company-level Plans

BASF

BASF, headquartered in Ludwishafen, Germany has announced its path to climate neutrality with an overall target of NetZero by 2050 and an interim target for 25% tCO2eq reduction by 2030 using the 21.9 million tCO2eq emissions in 2018 as a baseline. The company plans to invest up to €4 billion over this decade in support of its carbon reduction plans. Over €1 billion of these funds are earmarked for 2021-2025. BASF has an extensive internal library of lifecycle data on its products which it can leverage to make decisions about which pathways to employ for NetZero. Key technologies which will help to meet its initial targets include: electrically heated steam crackers for production of olefins, and electrical heat pumps for producing carbon neutral steam. Other projects include development of methane pyrolysis technologies for production of hydrogen – if utilized with biogas/biomethane these can be fossil free. Other areas of development include carbon capture, utilisation and storage (CCUS) and use of proton exchange membrane electrolysis (PEMEL) to produce green hydrogen. (Nonnast, 2021) BASF also has technology for a number of biobased chemicals and plastics and uses its “biomass balance” approach which incorporates biogas and bio-naphtha (produced from bio-pyrolysis oil) as feedstocks for its chemicals production. ( BASF, 2021 ).

Croda

Croda, headquartered in Snaith, Yorkshire, UK has had a set of sustainability goals in place since 2015 which ran until 2020 with longer-term targets for 2030. The long term goals are split amongst there areas. (Croda, 2020):

Climate Positive: Croda’s Carbon Cover strategy aims by 2030 to sell products which save four times as much carbon associated with its business. In addition it has set out Science Based Targets (SBT) to limit its emissions e.g. through use of renewable energy in its processes in line with limiting the global temperature rise to 1.5ºC above pre-industrial levels. The company has pledged to move its organic feedstocks to 75% biobased c.f. 63% in 2019.
Land Positive: Croda’s crop protection ingredients, seed treatments and new technologies will save more land than is used to produce them; by 2030 two technological breakthroughs for crops per year which mitigate climate change and land degradation and formation of three partnerships that contribute to tackling compromised farmland.
People Positive: goals pertaining to vaccine development, UV protection skin products, gender balance within the organisation and establishment of the Croda Foundation to help the local communities.

Croda uses a number of methods to track its progress and has received awards and high sustainability ratings from external organisations and awards bodies.

Evonik

Evonik, headquartered in Essen, Germany has announced its 2020+ strategy covering climate, water and portfolio management. The strategy sets out to make continuous improvements to the sustainability of its manufacturing processes and to meet customer demand for renewable products. Specific near-term goals are to halve Evonik’s GHG emissions by 2025 compared to a 2008 baseline. It will use internal CO2 pricing to assist with sustainable investment decisions. For water, Evonik is introducing a worldwide water management system with specific plans to avoid water stress.

Evonik employs its Sustainability Analysis 2.0 methodology to monitor performance and supplement its other strategic business analyses. This uses the product-application-region-combinations (PARCs) approach for portfolio standard assessment (PSA) as shown in Figure 2 below.

The eight market signal categories are:

Chemical hazard and exposure across the life cycle
Anticipated regulatory trends
Sustainability ambitions along the value chain
Authoritative ecolabels, sustainability-related certification, and standards
Environmental and social performance across the life cycle compared to alternative solutions
Sustainable value creation
Contribution to the UN Sustainable Development Goals
Contribution to the company's internal guidelines and objectives

The results of the PARCs analysis are used in Evonik’s annual reporting and external communications. It reports that 90% of its products and solutions have sustainability performances at least in line with the market reference (leader, driver, or performer category). Its goal is for 35% in the leader and driver categories i.e. above, or well above, market reference.

Products in these categories form part of Evonik’s Next Generation Solutions. LCAs will also be used for more product-oriented measures to reduce the company’s carbon footprint and water management.

Figure 2. Portfolio Standard Assessment (PSA) Framework and Rating System ( Evonik, 2019 )

Evonik has a range of biorenewable products including bioplastics and bio-surfactants and is working on circular plastics from pyrolysis oil. It is also working on artificial photosynthesis which combines water electrolysis and fermentation of biobased feedstocks to produce renewable chemicals. It has also begun developing membranes for a new type of water electrolysis technology called anion exchange membrane (AEM) as part of the EU CHANNEL project. AEM is an interesting development because it overcomes the issues of large precious metal requirements for PEMEL and use of caustic liquids for alkaline electrolysis (AEL).

Solvay

Solvay, headquartered in Brussels, Belgium has introduced its Solvay One Planet initiative which is structured around three pillars:

Climate:

Lowering GHG emissions by 26% in line with keeping well below a 2°C temperature increase. Using renewable energy, energy efficiency, an internal carbon price €50/ tCO2eq in all investment decisions and use of circular economy approaches. Current emissions at Solvay are 10.1 million tCO2eq.
Eliminating coal – Solvay will not engage in building coal fired power plants by 2030 and will look for renewable alternatives where resources exist.
Reducing its pressure on biodiversity by 30% including terrestrial acidification, water eutrophication and marine ecotoxicity.
Measuring climate impact of its production and services in conjunction with customers.

Resources

Increasing water use efficiency to reduce intake of freshwater by 25%.
Accelerating the circular economy in partnership with the Ellen McArthur.
Foundation with goals: 15% of product sales from renewable and recycled product sales and reduce industrial waste by 33%.
Collaboration with Solar Impulse Foundation to increase sustainable solutions to 65% of total group sales. Methods include research and innovation, M&A, strategy and impact quantification.

Better life

Prioritising safety, embedding diversity, equity and inclusion, extending maternity and paternity leave.

The One Planet initiative focuses on areas where its products and solutions have maximum impact and alignment with the UN SDGs. The initiative is implemented using Solvay’s Purpose and G.R.O.W (Growth, Resilient Cash, Optimize, Win) strategies and the actions and projects undertaken are measured against ten key SDG. In 2020, Solvay boosted its sustainability plans with the introduction of science based targets (SBT).

Specific low carbon technologies include: use of biogas energy, chemical recycling of plastics, production of lithium ion battery (LIB) materials, battery recycling, sustainable tire materials, lightweight aircraft parts, clean air and water solutions and crop growth biostimulants. ( Kadri, 2020 )

Unilever

Unilever, headquartered in London, UK, has pledged to reach NetZero carbon emissions from its products up to the point of sale, by 2039 and to halve the GHG impact of its products across the lifecycle by 2030. €1 billion in investment will be placed into the Unilever Climate & Nature Fund over the next ten years. Internally, the goal is to achieve zero emissions in Unilever’s operations by 2030. While the focus is on innovation, part of its strategy will be to generate or purchase high-quality GHG offsets for any residual emissions. Unilever pledges to share the carbon footprint of its products with customers by 2030.

Each division has its own strategy for reducing GHG:

Home Care: The ‘Clean Future’ programme seeks to have fossil-free cleaning and laundry products by 2030, using “rainbow carbon” i.e. plants (green carbon), atmosphere (purple carbon), marine algae (blue carbon), and waste plastic (grey carbon). €1 billion will be invested to meet this goal. to Further measures include more concentrated detergents which require less water weight to be shipped and use smaller bottles.
Foods & Refreshment: Future Foods strategy, which aims to achieve €1 billion in sales from plant-based meat and dairy alternatives. In addition, the aim is to halve food waste in direct global operations by 2025.
Beauty & Personal Care: Reach 1 billion people per year by 2030 with products that improve health and wellbeing and advance equity and inclusion.

The NetZero aims are administered through the Unilever Sustainable Living Plan (USLP) which was launched in 2010 and provides an all-encompassing blueprint achieving sustainable growth across Unilevers’ brands and business divisions globally. The ULSP has three main goals and nine pillars as shown in Figure 3. These are audited every two years using a materiality analysis.

Figure 3. Unilever’s Sustainable Living Plan Goals and Pillars ( Unilever, 2021 )

Specific low carbon products include paper-based detergent bottles with a proprietary internal hydrophobic coating, refillable deodorants and mycoprotein for plant-based foods.

Closing Remarks

Achieving net zero in the given timeframe requires access to an extensive toolkit of decarbonisation technologies and many billions in investment. A diversity of approaches is required, and each needs careful and effective lifecycle calculations to ensure the best chance of being effective.

It is true to say that not all decarbonisation methods were created equal. Biobased approaches can suffer from unintended consequences on land and water use and as seen with products such as palm oil, deforestation in order to use land to profit from crops. The switch from plastic to paper and other biodegradable materials needs to be carefully considered as this perpetuates a single-use culture. Many plastic items can be utilized repeatedly and chemically recycled into new plastic products. Reuse in general has a much higher positive environmental impact than materials which are designed for single use.

Negative action goals such as agreeing to cease a polluting activity at a future date are often criticized and may not be enough to appease activist investors and shareholders looking to green their portfolios. Some goals and internal processes such as setting of “science-based targets” might also be seen a repackaging of the business as usual unless there are distinct new feedstocks and processes being introduced into the business.

In contrast more proactive goals which look to reduce and utilize waste offer a dual benefit, reducing the environmental burden of land and ocean waste while displacing the need for virgin resource extraction. Waste pyrolysis, biogas utilisation and CCUS approaches are all valuable methods which fall into this category.

Dr Michelle Lynch offers consulting projects exclusively aimed at reducing the ecological footprint of chemicals, fuels, energy and power systems across their full lifecycles.

She offers support to start-ups, SME’s, investors, multinational companies, government funding arms, and universities. Michelle runs her business out of London, UK and is passionate about helping technology developers to realise the goal of NetZero via high impact sustainable technology solutions.

Turbulent markets and riding post-pandemic momentum are not enough to ensure success!

Thu, 01 Jul 2021 10:22:15 GMT

Logistics and raw material shortages are challenging producers and distributors alike to meet the needs of customers as the worldwide effect of the pandemic continues to create unprecedented and volatile supply chain performance.

Indeed, it will be months - and in some cases years - before we get back to pre-pandemic conditions.

However, a competitive advantage can be achieved for those prepared to look beyond today’s horizon and position themselves accordingly.

Post-pandemic performance projections

It is common for both strategy and execution to be based on what we might call ‘cherished' assumptions about addressable market size, opportunity, and conversion rates.

All growth is measured and judged by comparing a prior year’s performance vs perceived opportunity and by how successful the execution of sales or product strategy was during the period.

With that said, the current volatility in the world economy, and the significant impact this has had on normal market dynamics, offers a unique opportunity to challenge those assumptions:

How will your future performance be measured, and do you need to re-establish, adjust, or correct your understanding of the market in a pandemic and post pandemic world?

For example, most distributors and producers operate within defined geographical boundaries, and, in some cases, specific industry verticals to determine a baseline assumed market size and benchmark to determine growth.

The inconvenient truth is that the market size and growth potential is subject to data inaccuracy or misinterpretation, with under or over-reported potential creating a false baseline against which to assess success.

This is not a new risk for industry to factor in, but what is new is the size of that risk - and the scale of impact.

A rapidly changing landscape

Unpredictability is high off the back of a global event, and businesses small and large will be paying the price of inaccurate market forecasting in the near years to come.

Industry players are still scrabbling to react to the tumultuous period of the last 12 months, with an understandablefocus on competitors, customer churn and sales management. There should however be a call to action to ensure that each business looks beyond today's crisis and positions itself for future growth.

Bearing this in mind, and looking at the chemical industry specifically, from a producer perspective the distributor sector remains incredibly fragmented, adding further uncertainty to future planning.

For example, if we look at published numbers from reputable consultant groups, industry publications and indeed information found within the publicly quoted companies, we can identify that the top 100 distributors worldwide only account for 30% of the estimated 280 billion Euro market.

There is also without question an opaque view on both size and composition of the sector in large regions of China, southeast Asia, and India which also account for a significant share of the global production capacity for chemicals. We often hear of consolidation of the sector by the larger distributors, but the reality is despite their capacity to acquire, it will be many years before we see the type of consolidation seen in other distributor markets.

Additionally, when planning it is important to remember that working with the best is not an exclusive characteristic of the largest.

Regional companies retain local market leadership and share through high service content and agility. Following the logic through suggests that they account for 70% of the overall market and should therefore be a thoughtful consideration when plotting out the future.

All stakeholders in the supply chain are equally tasked with addressing the ongoing development of environmental and sustainability actions and alignment of such values are essential to any long-term success.

Add to this an expansion of digital services and platforms, increased technical expertise within industry verticals and more value-added services, the time is now to reassess the ‘cherished' assumptions about each market.

Planning for long-term success

The effectiveness of any article which challenges the status quo can be measured by the critical questions it prompts.

In the case of producers:

Are we using the most effective channel to market, and do we achieve our true potential on market share for our products and services?

This can equally apply to distributors in challenging their own effectiveness in delivering value-added and unrivalled service to re-ignite growth and gain market share.

Companies who do this systematically and take the time to look beyond the horizon - despite the turbulent times we are in - will be the winners of the future, with improved market share and penetration.

Just as the competition were looking the other way!

Introducing the “Chemical Transformations Podcast: the art of unlocking sustainable commercial potential”

Fri, 07 May 2021 12:56:20 GMT

Welcome to CCD Partners’ newly launched Chemical Transformations podcast!

Businesses built on expertise in chemistry or biology often face unique challenges realising and sustaining their full commercial potential.

Throughout our newly-launched podcast series "Chemical Transformations Podcast: the art of unlocking sustainable commercial potential" we will be interviewing dealmakers and business leaders to learn about the challenges they are facing and the strategies they have employed to get ahead and stay ahead.

In our inaugural episode, CCD Partners Managing Partner Matt Dixon and Senior Advisor Glenn McGuire discuss the sale of Chem32 to PQ Corporation , recent performance trends in the specialty chemicals markets, and how investor confidence has evolved a year on from the COVID-19 pandemic outbreak.

Episode 1: Glenn McGuire

Were strong 2020 results for chemical distributors a win-win for all stakeholders in the supply chain?

Mon, 19 Apr 2021 06:32:50 GMT

Chemical distributors delivered impressive results in 2020 during the Covid crisis, with increased margins and strong cash flow. We ask was it a win-win for all stakeholders in the supply chain?

A changing performance landscape

With all the publicly quoted chemical distributors reporting strong gross margins and very impressive cash flows during 2020, they are now preparing to report Q1 2021 results from a market which is still showing considerable volatility, providing the sector with fertile ground for disciplined pricing and volume related growth into 2021.

When results become available, comparisons to prior year performance will be more complex. This is a rapidly changing situation, with global economies still out of sync due to Covid measures and considerable uncertainty in the extended supply chain.

We are all aware of high-profile unintended outages by way of plant failures or weather-related closures, which added to product shortages. We also saw rising costs in shipping and longer lead times. All of which served to create a turbulent supply chain and pricing environment.

Adapting to change

The business model by which most chemical distributors operate has demonstrated once again this is a sector which is resilient in a crisis and difficult market conditions.

Pricing and gross margins for distributors are robust as customers reduce their order size in a sudden slow-down. This creates an almost automatic increase in unit price to cover the smaller quantity delivered. When this happens on a large scale the margin mix can become very favourable.

Distributors also benefit from a cross-over from accounts more normally associated with producers directly as they purchase a smaller quantity of raw materials due to the lack of forward visibility.

In addition, we see such customers conserving working capital, destocking to minimum levels, whilst paying a slightly higher price to a distributor which in the short term is seen as acceptable.

We also saw a rapid expansion of the mixing and blending operations offered in the sector to service the unprecedented demand for hand sanitiser solutions and other products associated with industrial hygiene. This also contributed to underlying gross margin performance.

2021 and beyond

Looking forward, it’s already clear the volatility throughout the supply chain remains and is likely to for the rest of this year.

Forecasts are somewhat loaded to the second half of the year but there is a view that we might expect economic recovery in the USA with growth around 7% and in Europe around 5%.

We’ve already seen a ramp up of production from producers to meet demand. However, it may be some time yet before post-Covid supply chains are fully established.

For the chemical distribution sector, a recovery in the USA will be positive as the slowdown in oil, gas, and lubricants markets during 2020 hit earnings hard and there is some way to go to recover the lost margin in these industries.

When we get to look at the quarter over quarter published results then the leap in contribution from personal care and hygiene will be somewhat baked into the numbers and as such, we will have a better picture of underlying performance outside these special effects.

Going forward, we might also expect to see a reduction in cash generation as the effects of increasing prices and reinvesting in stock holdings (for those previously run down to a minimum) are normalised.

In addition, there will be a lot of focus throughout the supply chain on payment terms which will no doubt be tested as all stakeholders increase working capital to grow their respective businesses.

A true win-win?

So, to answer the question posed at the beginning of the article, the on-balance view would be yes!

The sector provided essential services to customers and highly diversified access to markets for producers. Robust demand throughout and stronger margins seem a fair reward for more value added services and smaller order sizes.

Over this relatively short article we have focused mainly on the distribution business model and the market dynamics of the last year. However, there is a lot more to the picture than can be covered in one article.

The industry continues to develop its future, particularly in the segmentation of process / industrial chemistry and speciality products.

It is also important to explore the subject from a producer perspective and understand how to ensure the chosen channel to market partner is serving their needs, not only in a crisis but in the longer term too.

If we add to the mix a likely resurgence of mergers and acquisitions activity, it’s certainly going to be an interesting year for all stakeholders in the sector.

Chem32 acquired by PQ Corporation: how business owners can capitalise on a post-COVID uptick

Mon, 19 Apr 2021 06:28:47 GMT

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.

Chem32’s founders divest to PQ Corporation for $44m

Mon, 22 Mar 2021 09:07:02 GMT

CCD Partners is pleased to announce the acquisition by PQ Corporation of Chem32, a founder-led supplier of catalyst pre-activation services in the US.

The deal provides an exit path for the founder-owners and a bright future for the Chem32 business.

About Chem32

Chem32 is a leading supplier of catalyst pre- activation services used in the production of traditional and renewable fuels Chem32 has patented technology and offers its services throughout the North American market.

About PQ Corporation

PQ Corporation is a leading integrated and innovative global provider of specialty catalysts, chemicals and services.

PQ Corporation operates a network of manufacturing facilities across three specialty businesses: Refining Services provides sulfuric acid recycling to the North American refining industry; Catalysts serves the packaging and engineering plastics and the global refining, petrochemical and emissions control industries; and Performance Chemicals supplies diverse product end uses, including personal and industrial cleaning products, fuel efficient tires, surface coatings, and food and beverage products.

CCD Partners’ role

Glenn McGuire, senior advisor to CCD Partners, advised Chem32’s founders on their strategic options and positioning of the company to potential buyers including facilitating the introduction of PQ Corporation to Chem32.

Soren Marklund, Founder of Chem32, commented:

“Glenn McGuire used his experience in the catalyst industry to present Chem32 to a select group of potential buyers. His successful introduction led to a match with PQ Corporation which plans to make Chem32 grow as part of their large and successful refinery services business, offering our employees new and better opportunities.”

Glenn McGuire, Senior M&A Advisor, commented:

“We were engaged to find an exit path for the founder-owners of Chem32 and engage potential buyers. I’m pleased to say we were able to introduce several parties with strong strategic rationales and the founders’ decision to choose PQ Corporation as the new home for Chem32 has ensured a bright future for the business.”

Kurt Bitting, President of PQ’s Refining Services, commented:

“We are very excited to welcome the Chem32 team. Chem32 diversifies our service offerings while giving us exposure to the rapidly growing renewable fuels industry.”

Aqdot and Elementis to collaborate

Wed, 10 Feb 2021 11:42:35 GMT

Aqdot and Elementis establish exclusive agreement to deliver proven odour capture and fragrance release benefits to anti-perspirant and deodorant formulators.

About Elementis

Elementis is a global specialty chemical company listed on the London Stock Exchange. The company is known for its expertise in rheology and natural, sustainable ingredients and focuses on scientific innovation and development of products that enhance the performance and value of customers' products in the personal care, and coating markets. Our personal care products, including our market-leading anti-perspirant actives, touch consumers every day with ingredients providing protection, moisturization, and elegant sensorial experiences.

About Aqdot

Headquartered in Cambridge, England, Aqdot® is a supramolecular chemtech company with a focus on improving air quality through licensing and selling its AqFresh™ platform technology. AqFresh™ is a novel and versatile performance chemistry that has exceptional capability at capturing, holding and releasing materials. Effective dry or when formulated in liquids and coatings, this powerful chemistry is game-changing in a wide range of industries.

AqFresh™ has no hazard warning for human health or the environment and has achieved a Platinum Material Health Certificate (MHC) from the Cradle to Cradle Products Innovation Institute. AqFresh™ is a trademark of Aqdot Limited.

CCD Partners' role

CCD Partners' Peter Dixon and Matt Dixon advised Elementis on market innovators and introduced Aqdot to Elementis.

Tim Wright, CEO of Aqdot, commented:

“We are delighted to partner with Elementis in the anti-perspirant and deodorant product category given their strength in the global market. We are confident that Elementis’ expertise and go-to-market capabilities will rapidly create significant value for their customers and consumers around the world with AqFresh."

Stijn Dejonckheere, SVP of Elementis, commented:

“We are looking forward to bringing this much needed solution to the global anti-perspirant and deodorant market while also complementing our market-leading portfolio of actives and ingredients for anti-perspirant and deodorant applications.”

Joe Lupia, SVP of Elementis, commented:

“Elementis operates in multiple overlapping markets where innovation is a strong driver of growth. CCD Partners has given us insight and fore-warning in adjacent markets where we had less visibility and has played a key role in us developing strategic partnerships with potentially disruptive innovators, strengthening our competitive position."

Covid-19 Pandemic and Post-Merger-Integration – Communication makes the difference

Thu, 28 Jan 2021 08:57:05 GMT

Why structured and regular communication is the key to both COVID-19 and M&A success

COVID-19 has created many challenges for businesses in the last year. These challenges can have positive and negative outcomes depending on how they are handled. Similarly, M&As can also have positive and negative outcomes depending on how they are handled.

A critical success factor for both is corporate communication. Andre Schommer , Partner and head of CCD Partners' post-merger-integration (PMI) arm draws out the parallels.

Destroying and creating value through M&A

One of the most common factors in M&A failure (i.e. failing to create value or even to destroy it) is insufficient focus on the PMI phase.

With ambitious growth plans to follow, CEOs and senior managers risk losing focus once a deal is completed (and a subsequent share price spike is generated) and may move rapidly on to preparing for the next acquisition, instead of supporting their integration teams to fully deliver all synergies.

The fundamental importance of the PMI phase stems from a range of factors.

Chief among these is the varying impact that the announcement of a merger or acquisition has on different stakeholder groups:

Employees of the acquiree are typically concerned with job stability and looking to management for details around the organizational structure of the new entity.
Employees of the acquiror are less likely to feel unsettled, but will be keen for an understanding of the deal drivers, opportunity created, and long-term company vision.
Customers of both businesses will want confirmation of how contractual obligations and account support will be handled, with similar questions raised by partners and suppliers.
Investors in the acquiror will be looking for details around projected shareholder returns, with a particular focus on the underlying deal rationale and forecast timeframes for realization of upside.

Successfully handling this range of stakeholders requires a clearly defined communication strategy – one that provides a framework for each manager, team, and leadership group to effectively communicate with related parties quickly and responsively, despite the inevitably shifting parameters of a complex initiative.

Interestingly for business leaders, this blueprint for cross-factor communications during a time of rapid change has many important parallels with government and corporate communications throughout the coronavirus pandemic.

What we can learn from COVID communications

In a daily press conference from 2nd April 2020, Canadian Prime Minister Justin Trudeau stated “we’ve learned a lot from South Korea, Singapore, and other countries. We’ve learned unfortunately a lot from Italy as well, in terms of what worked and what didn’t work there.”

Based on the template built by South Korea, Canadians could take notes on creating a rapid-response epidemic control system that integrates communications.

That wasn’t always the case - during the 2015 Middle East Respiratory Syndrome (MERS) outbreak, South Korea’s lacklustre response and unclear communications fostered anxiety among the public.

However, the system was reformed - South Korea’s Centre for Disease Control now houses an Office of Communication, specifically designed to prevent misinformation and control the flow of certified data for decision-making and broadcasting.

During COVID-19, communications were effective and efficient because key channels of distribution (for instance, an emergency text message system) were already in place, established in anticipation of similar high-pressure scenarios.

Since 2016, this Office of Communication has recruited members of the general public to assess and guide its messaging strategies. South Korean compliance with public health guidelines in 2020 is far greater than it was during MERS, demonstrating that institutionalization can also expand capacity to measure, understand, and respond to public sentiment during a pandemic, including on social media.

Around the world, similar patterns have been observed – governments, scientists, and healthcare services have succeeded or failed to varying degrees not purely as a result of their decision-making, but based on their ability to rapidly communicate complex initiatives under time pressure, and to a wide range of stakeholder groups.

Capturing Hearts & Minds

However, infrastructure and process alone are not enough.

Even the most efficient messaging system is ineffective if the recipient is not emotionally committed to engaging with the instructions or advice being issued.

Once more, this has been evidenced widely throughout the pandemic, with populations’ faith in their governments and media significantly impacting their willingness to comply with recommendations or restrictions.

The parallel with PMI scenarios continues here too, with any communication strategies fundamentally dependent on the underlying engagement of the stakeholder groups in question.

One of my mentors, Daniel Hughes, once told me to never underestimate the importance of capturing people’s “hearts and minds” before any strategic initiative. It is my firm belief that capturing hearts and minds is crucial to successful PMI, as well as for pandemic-related crisis management.

Key to capturing hearts and minds is the ability to use communication structures to listen, understand, and deliver information effectively so that you can build trust and stability. Trust and stability counteract the uncertainty and anxiety created by major changes.

Communications strategies which are built around top-down unidirectional directives often fail in this regard, and avoiding this trap was a key component of success in my career when delivering Elementis's successful acquisiton and integration of Summit Reheis.

Key Takeaways

Designing and implementing effective communication strategies is a vital aspect of fully capturing the value potential of a merger or acquisition.

Government leadership and business share the same core aims:

Tailor the approach to clearly-defined stakeholder groups
Enable rapid two-way information flow
Build trust and stability to win hearts and minds

Andre Schommer is Head of Strategic Consulting at CCD Partners.

2021 - An SME Outlook

Thu, 28 Jan 2021 08:52:02 GMT

Against a backdrop of unprecedented disruption, there are likely to be transformative opportunities for strategically-minded SME chemical and life science business owners.

2020 was a testing period for all businesses, but the impacts of the global COVID-19 pandemic were not felt uniformly across the chemical and life sciences sectors. Some sectors suffered whereas others benefited, not always predictably so.

Large international conglomerates with diversified product offerings and end-markets were generally better able to weather the storm of financial and operational disruption. Smaller, often owner-managed specialty businesses with high sector focus were more likely to face greater extremes of threat and opportunity.

Turning the corner into 2021, the forecast – though more optimistic – remains unclear. On one hand many countries around the world continue to operate under varying degrees of lockdown restrictions, while on the other the commencement of vaccine roll-out programmes appears to offer a light at the end of the tunnel.

However, despite the ongoing uncertainty, there are signs that 2021 will offer a rare combination of market factors which could present exciting opportunities to SME owners that can carve out time from fire-fighting to take the initiative.

Backlog of existing opportunities

The experiences of CCD Partners’ clients across 2020 was broadly typical of those of many across the market, with many deals facing completion delays caused by the physical and legislative disruptions of the pandemic.

Despite innovations including virtual site tours and interactive video calls, without in-person inspection of assets, buyers were (and still are) reluctant to proceed.

As well as impacting M&A processes, restrictions on movement and a shift of priorities towards fighting the pandemic have also had many other knock-on "slow-down" effects. For example, regulators have de-prioritised inspections of non-Covid-related sites, holding back the approvals essential for many products to be manufactured and sold.

Furthermore, the billions of "dry-powder" private equity capital has not gone away. Investors are sensibly cautious where to deploy their funds but ultimately they need to use it or lose it.

The cumulative effect of these and similar factors has been the accumulation of an an ever-increasing demand vacuum for products and services as well as M&A and investment.

Emerging new opportunities

The pandemic has also created a raft of new opportunities.

Business leaders are being forced to re-assess their strategies, looking at entering new markets or exiting old ones, paring down non-core operations and optimising what's left. Each of which may require acquisitions, divestments, investments, or new talent.

We are also aware of previously steadfastly independent businesses now opening up to collaboration/M&A due to financial or market pressures.

Getting ahead of the curve

With lead times on M&A and investments spanning anywhere from six months and up, business leaders and investors are not sitting patiently waiting for the pandemic to pass.

Instead, as evidenced by CCD Partners’ significantly increased volume of inquiries in 2020, business leaders and investors have made the most of the enforced ‘downtime’ of the pandemic to put in the groundwork to be ready once conditions improve.

We have been working with clients to assess the shifting markets, define their best strategies, and engage with potential target acquisitions, partners, and investors so that our clients are first in the queue once the markets open up and deals can be completed again.

Lockdown and closed doors are hiding a hive of activity.

Implications for SMEs

SMEs looking to sell or raise capital in 2021 are likely to face competition for the attention of buyers and investors juggling a backlog of existing deals with varied new opportunities.

This means it is more important than ever to build a compelling narrative that explains why your business will transform their business to fit with their objectives and to make engagement with you as painless and low-risk as possible.

Some examples of our recent work in this regard include:

showing how recent disruption has accelerated certain markets meaning opportunities we all thought were 10 years away are now 5 years away
clearly explaining the adverse but temporary impacts of the pandemic on 2020/21 production/sales
providing sensitivity analyses that show resilience to any further waves of COVID-19

In summary...

These unprecedented market conditions present exaggerated opportunities and threats to SME business leaders. The key to maximising value and avoiding being burned is to pro-actively prepare, understand the other side, and engage on your terms.

The IM – An SME Seller’s Guide

Wed, 04 Nov 2020 16:00:26 GMT

The creation of an Information Memorandum (IM) when selling a business can often be considered something of a formality – a pragmatic stepping-stone designed to introduce an opportunity and open dialogue with prospective buyers.

In fact, the IM is a strategic document of vital importance – one that can have enduring impact on the pace, structure, and outcome of negotiations, anchoring the process and directly affecting the eventual sale price.

Based on decades of working with lower mid-market chemicals and life sciences businesses to achieve exits at market-beating valuations (often by more than 40%), and reviewing hundreds of IMs of varying quality on behalf of buyers and investors, the CCD Partners team shares its thoughts on creating successful sell-side materials:

Why IMs often fall short in the SME market

Unlike bigger businesses where detailed vendor due diligence is common practice and teams of external advisers prepare highly detailed and relatively standard-format IMs, smaller businesses' sale materials and, in particular, those prepared by DIY-sellers, are far more variable, often erring on the side of "less is more" and focusing on their own products and services rather than the value of the business as a whole to the potential buyer. At the same time smaller companies are often far less well understood than larger higher-profile companies – so, if anything, they need more, broader information in their IMs, not less.

The frustrating thing for us as advisors is that we see a lot of such DIY-seller IMs and we know the DIY-seller is unlikely to ever find out their IM has seriously undermined their position.

Many buyers, who are often juggling multiple opportunities (often larger than the seller's), will simply judge the IM on the basis of a cursory read and simply signal "no interest" without telling the seller that the IM failed to make clear why the buyer should be interested.

Furthermore, such a DIY IM tells an interested, experienced buyer that the seller is inexperienced, so the buyer is emboldened to make unusually buyer-friendly demands or simply offer a lower price than they would be ultimately prepared to pay.

Getting it right

An effective IM, therefore, addresses both of these problems:

Initially, it catches buyers' attention above other opportunities on their desks by clearly signalling that further assessment of this opportunity has a good chance of being worth their while - by both setting out the value of the opportunity to the buyer (high value), and making it obvious that information and data is readily available for review (low cost).

Secondly, a well-produced IM will demonstrate to investors that the seller has experience negotiating M&A deals (or has such experience in their corner) and is well prepared. It will use the right wording and nomenclature, it will set out and define the key financial metrics common to most M&A deals, it will include references to further backing information and diligence reports, it will start building a clear platform for later negotiations (for example, listing areas of potential synergy with buyers), and will make all the necessary disclosures and address any areas of potential weakness up front.

IMs which achieve these goals are usually simple in structure, built around a central narrative that dives progressively deeper into the same core pitch, walking the buyer through the opportunity and offering more and more granular levels of supporting data to continually reinforce the narrative.

Building the narrative

Although every IM is unique, we recommend that every seller should seriously consider the following workstreams to develop the fundamental building blocks of a pack of transaction-focused sales materials:

Market review and competitive landscape
Business plan (with and without external investment scenarios)
Historic and forecast P&L, BS, and Cash Flow (preferably monthly)
Working capital and capex analyses
Quality of earnings analysis
IP/Patent analysis where applicable
Identification of synergies that may be available to buyers

These building blocks are then used to inform and underpin the IM which should tie together between five and eight key stand-out facts about the business (often referred to as "investment highlights") into one cohesive and consistent transaction narrative that can be repeated across all core sales materials (pitch, teaser, IM, management presentations, full data suite).

The first step in capturing value

Contrary to many business owners’ natural instincts, an IM should be a more nuanced and complex tool than a straightforward ‘profile’ of their company.

Well-executed IMs serve to:

engage the best-matched buyers effectively
present a clearly-structured value opportunity
demonstrate seller sophistication
lock-in terms favourable to the seller from the outset

IMs represent a highly strategic step in capturing maximum shareholder value and can materially impact the eventual sale price and deal structure secured from potential buyers.

This is well understood at larger scales, but often seems to get lost in the lower-mid market. Even for businesses selling for as little as £5m, relatively modest swings in value (or a swing from no sale at all) can easily surpass the cost associated with building a top-quality IM.

In our experience, top-quality professional IMs are well worth the investment.

ESG – An investment touchstone made real by Covid-19?

Tue, 27 Oct 2020 15:01:47 GMT

Could a renewed focus on Environmental, Social and Governance (ESG) be the start of a 'green recovery'?

Ethics and economics have not always moved in lockstep in the world of business investment.

This is set to change for good in the chemical industry with a renewed focus upon environmental social and governance (ESG) factors. There are two principal drivers of rapid change in the chemical industry, the first comes from a perhaps unlikely source: the Covid 19 pandemic. Whilst causing economic damage the crisis has unleashed a wave of government fiscal support and this concerted government action brings a greater ESG oversight than might be the case otherwise, with governments focusing on a green recovery (1) post Covid. A second, industry specific driver of change derives from a perceived weak performance, specifically in terms of carbon intensity and plastics waste, which pose an existential threat to sectors of the industry and make change an imperative.

Ethical and ESG investments have outperformed the wider market in recent years(2), a trend that is both heartening to see and expected to continue. Indeed, if further evidence were needed, it appears that the converse applies. Taking the tobacco industry as an example of a sector which would fail most ethical screening tests, stable, often robust financial performance over the past three years, including great resilience during the pandemic, has been ‘rewarded’ with a near halving of enterprise value for a number of the majors.

Turning to the chemical sector, we see change afoot. Global majors are not always the most agile of corporations, however we should certainly take note of the announcements by Unilever and BP. Oil major BP set out an ambition of ‘net zero by 2050’ and consumer goods leader Unilever has pledged to replace all fossil carbon in its cleaning and laundry product formulations with renewable or recycled carbon by 2030. It is likely that these announcements will be looked back upon as the point of inflection at which the industry dynamic changed for all time.

As consumer sentiment swings relentlessly towards increased awareness of environmental performance, major corporations are enshrining these principles in their business objectives. It is therefore essential that chemical industry players and investors alike align business models with the changes that are set to sweep through the sector.

We can identify three key axes which are going to play a prominent role in the transformation of the sector, namely decarbonisation, biotransformation, and circularity. The themes are not exclusive; indeed, they are neatly circular themselves with biotransformation of (circular) waste leading to decarbonisation, for example.

At CCD Partners we have seen and increasing appetite for transactions built on sustainable technologies and some really exciting technologies built on biotransformation and decarbonisation.

Whilst there are no certainties in investment, catching the Zeitgeist of outstanding ESG credentials whilst swimming with the ‘green recovery’ tide provides a very sound foundation for success in the post-Covid era.

(1) https://www.oecd.org/coronavirus/en/themes/green-recovery

(2) Majority of ESG funds outperform wider market over 10 years. Siobhan Riding, Financial Times, June 13 2020.

PE Explained

Tue, 07 Jul 2020 11:07:54 GMT

How it works, when to use it, and the 3 crucial calculations to understand

As the owner of a private company, you have likely considered ways to accelerate the growth and increase the value of your business.

You may have explored fundraising routes to scale up output, strategic partnerships to widen distribution, or looked at ways to diversify and differentiate your commercial offering.

The possibility of a majority investment from private equity (PE) may also feature among your options, but – like many business owners – you may have questions around the details of how such a partnership would work in practice.

CCD Partners meets regularly with private company owners who are curious to evaluate how a collaboration with PE could impact their business, as well as seeking to better understand the financial mechanics of such an investment.

Typical questions include:

How does the PE model work?
What value does PE provide, beyond just cash?
What results / return are they targeting, and do I benefit?
How can I get the best deal?

This article is a walk-through of the basics of PE - designed to give private owners an idea of the types of questions they should be asking as they explore the option of working with PE.

How PE works and when to use it

The underlying model of PE is relatively straightforward. They aim to buy low and sell high to realise gains for their own investors and themselves, typically over a 5-10 year time horizon.

Target returns and sample deal structure:

Although it can vary substantially, PE houses typically target a 3-10x overall return on their investments - equivalent to 20-40% per annum (compared to ~10% average stock market returns).

A typical deal might look like this:

A PE house values a company at £20m and acquires 75% from the owner for £15m.
The PE house invests capital and provides expertise to help management significantly increase the value of the company, eventually selling for £120m.
The original owner’s remaining 25% therefore nets them £30m – in addition to the £15m they had already banked on the initial transaction.
The PE firm has invested £15m (plus any investment capital), and sold for £90m, i.e. they have achieved an overall return of up to 6x.

As can be inferred from this example, the PE model is most effective for companies with significant value-creation potential that can be unlocked with an injection of capital and expertise. i.e. if your company could change from a £20m business to a £100m+ business in 4-5 years, and all this takes is capital and expertise, it could very well be an excellent option to consider.

For private owners, what matters most (economically at least) in such a scenario is:

how much the PE house pays on entry (e.g. the £15m plus 25% equity), and
how much might be achieved for the business on exit (e.g. the £120m).

The 3 crucial PE calculations

Once invested, the PE house will normally do a pretty good job maximising the chances of a high valuation on exit.

The most important thing for private owners considering the PE route is to secure a good deal on entry.

Success here typically means:

a) securing a high level of cash out, and

b) retaining a healthy % of the equity.

How much any given PE house will pay you in cash and equity on entry is typically determined by the “3 crucial calculations” mentioned in the title.

Understanding these 3 calculations is vital for private owners preparing to enter discussions with PE.

This is a broad topic, but we have attempted to distill it down to PE’s top 3 considerations under each heading, as follows:

1. Exit Valuation – What is the expected value in 5 years’ time?

Market trend / customer pull – What is the current and projected future demand for the company’s product or service?
Competitive advantage – Do clients want the company’s specific service or product over other options?
Exit options – How easily will the PE house be able to sell the company at the end of their investment lifecycle?

2. Journey Risk – How risky they think it will be (and how long) to get from entry to exit?

Organic factors - Does the journey require organic growth? How will that be achieved? What does it require? How risky is it?
Inorganic factors - Does the journey require bolt-on or other acquisitions? How will that be achieved? What does it require? How risky is it?
Leadership – The PE house will need to believe in and trust the management team, whether that includes existing management or new recruits.

3. Entry Price – How much they have to pay to persuade you to sell to them? (Crucially, this is not the same as their valuation of the company).

Presented value – Does the PE house think you know the full transformative potential of your business – For instance, if you forecast your business to reach £100m in value but they think £400m is possible, would they tell you?
Data quality – Can they find any errors, risks, or concerns in your business plan (or your presentation of it) – If you agree a price of £20m but then a number of holes in your plan are discovered, even if these are not big value points, how much will they reduce the £20m?
Other options – Do they think you have any other options – If they reduce their price by 20% would you still accept it?

Optimal strategy – How to get the most out of PE

Matched with the right company on the right terms, PE can unlock significant value.

For private owners to fully participate in this value-creation requires an understanding of how PE houses approach investment opportunities and their rationale for both selecting and pricing investments.

Though by no means exhaustive, the below serves as a starting point for private owners looking to develop their own PE engagement strategy.

1. Develop a PE-focused business plan, supported by:

Market trend / customer pull data and rationale
Competitive advantage data and rationale
Exit options data and rationale
Details of organic growth required
Details of any corporate acquisitions required (if any)

A business plan specifically tailored to PE which demonstrates a detailed playbook for PE-backed value creation differs significantly from typical standalone corporate business plans.

2. Have a top-notch leadership team in place, or at least available, preferably with:

Prior (successful) experience with PE and M&A
An amount of time in the business or engaged with the business
All roles required for the business plan filled, or with detailed plans in place

Forward planning for the personnel involved in bringing the PE-backed growth plan to life is essential. Many PE houses do not like incomplete management teams, presenting a full management solution greatly widens the field of potential investors, which in turn greatly increases the potential pricing of any deal that might be secured.

3. Do your own due diligence:

Collate and review all the documents PE would review in their due diligence process
Build your business plan up from primary data that can be analysed and cut in multiple ways
Make sure any “skeletons” are dealt with up front before pricing is agreed

Vendor due diligence not only protects business owners from surprises (and subsequent price negotiations) but also facilitates building an extremely credible thought-through business plan that investors can believe in.

4. Run a professional process:

Convince the PE firm that you know what you’re doing
Use professional negotiators
Use competitive tension

In any sale process format (from one-on-one to wide auctions), sellers are vulnerable to significant price reductions during late stages of due diligence and final pricing. The primary defences against this are 1) showing you can walk away to other options, 2) pointing to pre-agreed pricing mechanics and market norms, and 3) the threat of reputational damage (in the competitive world of PE it is advantageous to maintain a good reputation amongst the advisory community).

In short, if they want to avoid leaving significant value on the table, private owners should ensure they approach and engage PE with a well-defined strategy – one that protects their short and long-term interests and works to lay the foundations for a win-win partnership.

***

If you are a private company owner interested in the potential of private equity to unlock the transformative potential of your business, please contact CCD Partners for a confidential discussion.

CCD Partners manages a network of regional, international, and sector-specialist investors in the chemicals and life sciences sectors, and works with business leaders planning for and securing investments that unlock the next chapter of their company’s growth.

Introducing CCD Partners' broking & introductions service

Sun, 05 Jul 2020 13:44:01 GMT

CCD Partners is pleased to announce the launch of our new broking and introductions service , designed to make pro-active connections between business leaders and investors across the chemicals and life sciences industries.

CCD Partners is pleased to announce the launch of our new broking and introductions service , leveraging the unique private-market intelligence generated by the CCD Partners network.

Sitting alongside our existing M&A Advisory , Due Diligence , and Executive Search services, CCD Partners’ new Broking service will offer private-market information on, and introductions between, business leaders and financial investors, either in relation to potential strategic/M&A opportunities, investment opportunities, or straight commercial introductions.

We have launched this service in response to sustained market demand for a light-touch success-only offering that can operate independently from or in conjunction with our more bespoke retained consultancy projects. As well as facilitating introductions, the service also provides a no-obligation channel of information on the fragmented and often opaque lower and middle market chemicals and life sciences sectors and the investors interested in them.

The Broking service is underpinned by a significant investment from CCD Partners into the ongoing development of a global database of lower and middle-market chemical and life sciences companies, including company profiles, corporate development strategies, and key leadership contacts.

Through the Broking service, private company owners who wish to be kept abreast of potential investors strategically interested in their business type, size, or geography can now be connected to a stream of bespoke opportunities and introductions without the need to formally ‘go to market’ in a full-scale sale process.

Similarly, strategic trade buyers, PE, and VC institutions can benefit from a greater flow of information on potential private-market investment opportunities aligned strongly with their strategies and criteria, either on a project-specific or ongoing basis.

To learn more about CCD Partners’ capabilities and track record in M&A and investment broking, please contact matthew.wise @ccdpartners.com

Green recovery investments

Mon, 22 Jun 2020 16:11:01 GMT

Evidence is mounting that a “green recovery” will be key to getting the economy back on track in the aftermath of the COVID-19 pandemic, focused on investment in the production of sustainable chemicals, materials, energy carriers and power systems.

There is a growing consensus that the “green recovery” will be key to getting the economy back on track in the aftermath of the COVID-19 pandemic. Researchers from Oxford University, UK recently published a study which pointed to green projects outperforming less sustainable options such as airline industry bailouts.

Subsequently in conjunction with the International Monetary Fund (IMF), the International Energy Agency published its Sustainable Recovery Plan covering the period 2021-2023.

The plan sets out three key aims: boosting economic growth, creating jobs, and building more resilient and cleaner energy systems. According to these reports, “building back better” will require investment in the production of sustainable chemicals, materials, energy carriers and power systems.

Within those categories two areas will be considered in more detail here: i) hydrogen and ii) carbon dioxide capture, utilisation and storage (CCUS). Together these are attracting billions of dollars in investment.

The territory is complex to navigate as there are many new innovative concepts for each, and a detailed understanding is required of the technologies and markets to make sound investment decisions. Some of the issues that need consideration are outlined below.

1. Hydrogen .

The majority of hydrogen is used as a feedstock to make chemicals and in the production of transportation fuels and other petroleum refinery products. More recently it has been employed for hydrogen fuel cells and this technology has moved from being a limited method of stationary source power to being a more mainstream transportation fuel in buses and trucks, mainly in China. Hydrogen fuel cells are now also in a small but growing number of passenger cars e.g. the Toyota Mirai and the company wants to make at least 1 million units by 2030. Hydrogen has been made for decades using processes known as “gasification” and “steam reforming” using coal and natural gas feedstocks.

The production of hydrogen results in carbon dioxide (CO2) emissions. Currently 99% of hydrogen is made in this way and only 1% from a green method – water electrolysis. However, there is a strong and growing desire to decarbonise hydrogen production. In May this year, a group of electricity companies and industry associations including EDP, Enel, Iberdola, MHI Vestas, Orsted and SolarPower Europe launched a campaign called “choose renewable hydrogen” pushing the European Union to make renewable hydrogen a priority in its pandemic recovery plan.

The options going forward to decarbonise hydrogen production include: use of a biobased feedstock e.g. biomass or biogas – Hazer Group in Australia is moving forward on this technology. Newer more efficient reforming methods such as autothermal reformers (ATR) and gas heated reformers (GHR) are in development, for instance at UK-based Johnson Matthey and partners. has These techniques would need to be combined with CCUS to be carbon neutral. There are also methods wihich avoid the generation of CO2 in the first place such as water electrolysis or methane pyrolysis. ITM Power, UK, Hydrogenics in Canada and a few others have water electrolysis technologies. Conversion of methane via a route which yields CO2-free hydrogen is seen as a “holy-grail” chemistry and many companies and research groups are working on such methods. Methane pyrolysis, for instance, takes natural gas and splits it into hydrogen gas and a useful solid carbon product such as carbon nanotubes (CNT). Gazprom in Russia is developing a methane pyrolysis method along with another route called methane adiabatic conversion (MAC). It is also working on its own water electrolysis technology. IHI Japan and CNRS France, TNO in The Netherlands and a German consortium based on BASF, Linde, and ThyssenKrupp are working on similar concepts for CO2-free methane.

In choosing a technology to invest in – one needs to be able to navigate the technology roadmap – with novel efficient reformers and bio-based feedstocks likely making an impact in the shorter term and a mixture of reforming with CCUS, water electrolysis in the medium-term and methane splitting and adiabatic conversion in the longer term.

There is the possibility that one of these earlier stage technologies could make a significant breakthrough and leapfrog other concepts.

Having a portfolio of investments across the different technology types may be a wise choice.

2. CCUS .

A key method in development for decarbonising chemicals production is to collect the point source CO2 emissions and either use them as a feedstock in place of virgin fossil fuels or to bury them in huge underground caverns on land or at sea. The benefit of the utilisation “U” part of the CCUS equation is that it allows the capture process to be monetised. For this reason, much of the CO2 currently captured is used in enhanced oil recovery (EOR), but there are many other options too. There are already technologies for making building materials such as cement, concrete and aggregates by turning CO2 back into solid carbonates – e.g. Carbon8 in the UK, Solidia, USA. In addition, it can be turned into a range of plastics – Econic Technologies, UK has a process for making CO2 into a feedstock for polyurethanes for instance and Newlight Technologies, USA ferments CO2 to make biodegradable polymers.

Fuels are a key area of interest for CCUS – with many companies including Carbon Recycling International in Iceland (CRI) having a process to make CO2 into methanol for fuel. Breathe Industries in India also has such a process. Methane is another key target for CCUS and utilises “Power-To-Gas” technology by combining waste CO2 with electrolyser hydrogen in a process called “methanation”. Sunfire GmbH in Germany making significant headway with its version of this process. Specialty chemicals are another possibility. US-based Lanzatech takes off-gases from industrial plants such as steel factories and breweries and ferments them to make specialty alcohols as well as aviation fuels using its CarbonSmart™ platform. A start-up in Iceland - Gefn-ehf uses a set of reactors that look much like rubik’s cubes to pipe in a range of waste products from the oil and fat industry along with waste CO2 to make renewable chemicals such as glycerol carbonate for industrial solvents, household and personal care products.

A key new technology for CCUS aims to remove CO2 from the air to bring the level back down to safe levels below 350 ppm. Climeworks in Switzerland, Carbon Engineering in Canada and Global Thermostat in the USA all have “direct air capture” (DAC) processes. DAC is currently much more expensive than CCUS and many researchers are looking to improve the DAC sorbent, which sits at the heart of the process. ExxonMobil is partnering with US-based materials manufacturer Mosaic Materials to come up with a metal organic framework (MOF) sorbent to improve the DAC process. Monetising DAC via CCUS is an important strategy and partnerships are being formed e.g. between Climeworks and Sunfire to make renewable methane.

The CCUS sector is an ideal territory for investors and likely to become even more so over the next decade. Success of CCUS is based around partnerships along the supply chain from the emitter to the end-use application manufacturer. Investors can be guided in part by the presence of oil and gas majors, and large industrial majors within a start-up’s consortium, although it may be worth investing earlier for the most promising technologies.

Dr Michelle Lynch offers consulting projects exclusively aimed at reducing the ecological footprint of chemicals, fuels, energy and power systems across their full lifecycles.

Is pharma’s innovation model the right approach for the chemical industry?

Tue, 10 Mar 2020 19:58:00 GMT

Fifteen to twenty years ago pharma was struggling with a number of approaching patent expiries for their blockbuster drugs and sales were being threatened by the fast follower generics industry. Lack of innovation and failure to develop new drugs to replace those going off patent was seriously being questioned in boardrooms.

Twenty years on and the pharma industry has completely changed its operating model - because they had to adapt. Drug discovery and drug development pipelines, the mainstay of traditional pharma, has now for many companies been partially or wholly subcontracted to contract research organisations providing services such as medicinal chemistry. Partnering with more nimble start ups with in-licensing deals helps feed pharma pipelines. This is an acknowledgement of the need to adopt new scientific findings and manufacturing processes.

The benefits of outsourcing include accessing skills, labour, and equipment that pharma might not have, at a price that is competitive to in-house development. Partnering offers an opportunity to de-risk new drug development, and adopting new science and processing techniques means a chance to develop innovative medicinal solutions.

In short, pharma companies have become orchestrators of a complex set of moving parts to develop and bring new products to market.

Is there a lesson that can be learnt by the chemical industry here?

The chemical industry faces threats from multiple flanks and is heading into a perfect storm of demands, including pressures to transition to a circular economy, to reduce the use of plastics, to protect the environment, and a widespread emotional dislike for smoke stacked industries.

It may now be time for the chemical industry to take a leaf out of pharma’s book and become comfortable with innovation, developing partnerships and not perceiving them as threats.

Bringing a new product to market is always challenging and perhaps ‘big chemical’ could look at developing partnerships and licensing agreement with the start-ups in the chemical sector. This would benefit not only the chemical industry in identifying new assets and working practices, but would also help the chemical start-up industry which is woefully behind the pharma/biotech start up sector.

There could also be benefits in a change in mind-set amongchemical industry executives when talking about innovation. Many cite the regulatory challenges faced by the industry or the length of time to bring a product to market as key obstacles - these are reasonable challenges, but hurdles the pharma industry has managed to overcome.

As with all industries, the success factor is having the right people with the right skill sets to drive the innovation. There is also need for buy-in and commitment from senior management teams to support innovation within a the company.

To be truly innovative, companies need people that have gone through the risk-taking experience, understand the processes involved and are willing to shield their innovation team when management starts looking for shorter-term gains.

By becoming more open and agile to innovating new ideas, adopting new technologies, business models and by focusing on customer requirements, the chemical industry still has a good chance of weathering this storm.

Anil Vaidya has over 25 years of expertise the life science and healthcare sectors, focused on the areas of commercial and technical due diligence.

Innovation accelerators in the chemicals industry

Wed, 04 Mar 2020 20:01:58 GMT

Business leaders in the chemicals space should be aware of the support offered by innovation accelerators in their fields, as demand for ever faster routes to market places them under new pressures.

Modern R&D models are being built on the integration of physical, chemical and computer sciences, and a commercial model that is increasingly played out within a framework of innovation across public, private and not-for-profit entities. Under this model, successful innovators are increasingly taking advantage of ‘innovation accelerators’ to develop, test and grow new ideas.

High-profile examples include the UK’s NHS Innovation Accelerator, a revolutionary programme that gives innovators the skills and guidance to support innovation in the healthcare sector, and Horizon 2020 (H2020), the main European funding programme for research and innovation. H2020 has a budget of €79 billion and is intended to remove barriers to innovation, and make it easier for the public and private sectors to work together within fields as diverse as nanotechnology, food security, green energy and healthcare. On a smaller scale, several large corporations (e.g. BASF, DuPont) have recently begun to nurture start-ups by hosting efforts top bring in outsider technology and foster an entrepreneurial spirit.

Of course, the process for being accepted by an accelerator is competitive – typically, less than 5% of applicants are accepted, but even an unsuccessful application procedure can be a learning experience and may provide realistic insights into the likelihood of success, or the need for a different approach. The lucky 5% should benefit from intensive expert focus on development and progress, including networking with other industry support providers and further investors. Just remember that funding is generally offered in exchange for equity – and what might seem like a small slice of cake now, might be quite large if your project is successful!

Business leaders in the chemicals space should be aware of the support offered by innovation accelerators in their fields, as demand for ever faster routes to market in an ever more competitive world places them under new pressures. The right accelerators can provide invaluable support for organizations in the early and fragile stages of product development, helping them avoid common mistakes, saving time and money, and increasing success rates. However, make sure you understand the value and pay-back, and how the programme will benefit your organization.

Sarah J Harding , PhD is a communications specialist with 20+ years of experience in the pharmaceutical and speciality chemicals sectors.

Can you reliably “beat the market” when selling your chemicals or life sciences business?

Mon, 03 Feb 2020 11:00:08 GMT

(Yes, and here’s how….)

There is a reasonably common view amongst business owners that one should wait to be approached by a ‘really keen strategic buyer’ before engaging in sale discussions. The reasoning being that if the buyer approaches first this gives the seller the upper hand in negotiations and means there is a good chance of a buyer being interested.

This, on its own, is wrong and, rather counter-intuitively, gives away the upper hand and can lead to sellers trapped into below-market deals or no deal at all after months of hard work.

I previously wrote an article on what to do if you are approached by a ‘really keen strategic buyer’ which looked into how sellers can give themselves the best chance in such a scenario. The thrust of this article is that sellers in this situation are starting on the back foot and must work hard to catch up and be lucky enough to be dealing with a counterparty that is both highly motivated and unusually honourable.

Rather than relying on such a buyer-led approach, I typically recommend a seller-led approach. Using the methods I outline below I have enjoyed 100% success in securing above-market sales over my last 4 years and 7 deals (ever since I started employing these methods in their current form).

How to reliably beat the market when selling a lower-mid market (i.e. valued between $10m to $100m) privately-owned chemicals or life sciences business.

At the most basic level, securing a high price for a business requires a) the buyer to believe it is worth a high price, b) the buyer to believe they have to pay a high price, and c) nothing to go wrong before completion.

So, to achieve each of these, the core objectives of any seller-led sale process should be:

Objectives

Maximise the perceived value of the business to buyers "Value Perception"
Maximise the negotiation power of the sellers "Negotiation Power"
Maximise the certainty that the deal will complete "Deal Certainty"

Every business is unique, and every sale process should be tailored accordingly, but it is possible to talk in general about the following core workflows:

Workflows

Narrative Development
Preparation and Presentation
Process Design

Taking each in turn…

1. Narrative Development

As I explore in my article “The most important thing to do when selling a chemicals or life sciences company” , developing a single compelling transaction narrative is critical to value. Such a narrative needs to inspire excitement in buyers, pull together all the strands of the deal in an understandable way, and build the platform for negotiations.

The narrative is the backbone of any process and is critical to get right.

Specific examples of what the narrative must do include:

Value Perception – ensure buyers are convinced of the strategic potential to them
Negotiation Power – ensure buyers believe there are credible alternatives to their offer
Deal Certainty – ensure the business appeals to a good number of buyers

2. Preparation and Presentation

Selling (and buying) a business is highly complex with hundreds of variables that each impact the final value. How the data is analysed, how it is presented, and how it is incorporated into any deal are all decisions that need to be made at various stages throughout the process. Furthermore, the sale of a company is not just about the business being sold – it is also about how that business might fit and interact with potential buyers’ businesses, which can often be in less-familiar markets.

As I discuss in my articles “When is analytical commercial due diligence not enough” and “How are privately-owned chemicals and life sciences companies valued” , a thorough grasp of accounting, transaction structuring, company valuation, and a techno-commercial understanding of multiple interacting dynamic markets is all simultaneously required to optimally prepare and present a chemical company for sale.

Specific examples of preparation and presentation required include:

Value Perception – ensure that sellers identify and present the full potential value of their business to all buyers (even those in less-familiar markets)
Negotiation Power – ensure all the key details are known and understood when headline deal terms are agreed
Deal Certainty – minimise the chance nasty surprises (internal or external) are revealed during due diligence

3. Process Design

A key aspect of a seller-led process is that the sellers can design and time the process to suit them. In a seller-led process it is much easier to design a timetable of work that focuses negotiation power during the short windows during which the key terms of a potential deal are agreed, that leaves sufficient time to prepare and execute with potential buyers, and that coincides with favourable seasonal conditions associated with the seller’s business (e.g. accounts preparation, typically strong sales months, and others).

Additionally, as I discuss further in my article “Selling your chemicals or life sciences business: why a slow process can erode value, and how to avoid it” , a slow process can kill a deal and so must be avoided through good process design.

Specific examples of what the process must do include:

Value Perception – ensure the business is perceived as a ‘prize asset’ being sold through a highly professional tailored process
Negotiation Power – ensure the factors that maximise negotiation power are focused to apply during the periods in which deal terms are agreed
Deal Certainty – minimise the time the business is “on the market” (when it is vulnerable to otherwise uncontrollable external factors)

In conclusion

It is possible to sell a lower-mid market privately-owned chemicals or life sciences business at above-market values.

However, to do it reliably , requires all of the following:

a full range of transaction skills and techno-commercial insight into adjacent niche markets,
a specialist and wide-reaching network of potential buyers and investors, but most of all
a pro-active seller-led approach and highly dedicated work ethic that is focused on delivering the three core objectives of Value Perception, Negotiation Power, and Deal Certainty.

I have not seen it work any other way. Yes, it can help if a seller is approached before or during such a process and there are success stories from buyer-led deals, but these are comparatively rare and the failures (that are typically not made public) are far more numerous.

If you are interested in reading more on this topic I recommend “How much should you pay an M&A advisor to sell your chemicals or life sciences business?” , which sets out more on the different styles of approach to company sales and the associated success rates.

CCD Partners advises Charnwood Molecular on investment by Synova Capital

Wed, 22 Jan 2020 14:13:17 GMT

CCD Partners is pleased to announce the investment by Synova Capital in Charnwood Molecular, an award-winning CRO serving the pharmaceutical, biotechnology, and chemical industries.

The deal provides Charnwood with capital to support and accelerate the continued growth and development of the business.

About Charnwood Molecular

Charnwood is one of the UK’s leading providers of outsourced drug discovery services, supporting an international client base of pharmaceutical and biotech companies in developing novel drugs.

Originating from Loughborough University, the company has expanded into premises within BioCity, Nottingham, and delivers services across medicinal chemistry, process research & chemical development and custom synthesis.

About Synova Capital

Synova invests in UK growth opportunities with a particular focus on companies valued between £20m and £100m. Key verticals include Healthcare & Education, Technology, Business Services and Financial Services.

"Developing the next generation of pharmaceuticals"

Announcing the investment, Charnwood's CEO and founder, Steve Allin, stated: “We are extremely excited about what we can achieve in partnership with Synova. Synova supported our business over an extended period prior to their investment, helping us to develop a strategic plan that we are all committed to delivering. They were able to leverage their sector expertise and introduced the business to a number of leading industry figures who will help us to grow going forwards. With Synova’s support we now have the resources to accelerate growth of our core service offering and to develop further specialist services to support our clients to develop innovative new treatments.”

Partner and Head of Healthcare for Synova, Tim Ashlin, added: “Having tracked Charnwood’s progress for a number of years, we are delighted to announce this investment to fuel Charnwood’s ambitious growth plans. It’s exciting to be supporting a business that is focused on developing the next generation of cutting-edge pharmaceuticals, and to support the continued growth of the UK life sciences industry.”

CCD Partners’ role

The CCD team was engaged to plan and execute a transition of ownership that would secure the future success of Charnwood.

We worked closely with the founders to assess all strategic options, build targeted business plans, and select and structure the transaction.

Steve Allin, founder and CEO of Charnwood, commented:

“CCD Partners provided Charnwood with excellent strategic advice and planning which ultimately led to a successful major investment into the business by Synova Capital. During a lengthy and highly technical process, CCD partners worked hard to identify and capture potential strategic value for the founders, and were able to protect that value during negotiations.

Importantly, the efforts put in by CCD Partners enabled us to continue to focus our own efforts on the day to day growth of our business during the process. It is our belief that we would not have achieved the final value withoutthe close support of CCDPartners.”

Phil Page, founder of Charnwood, commented:

“We are delighted with the deal and with the CCD Partners team. We’ve achieved our original goal of planning a sensible transition for the founders, and, as part of CCD’s process, we have also developed a future investment and growth strategy well beyond our original expectations.

Charnwood now has highly invested and experienced figures at the helm and is set for a very bright future. The CCD team was instrumental in realising this potential for us and, for anyone considering a similar transition process, I cannot recommend them enough.”

Top 3 things to understand before appointing M&A advisors

Fri, 29 Nov 2019 15:09:43 GMT

Most of CCD Partners’ people have led (or are leading) chemicals or life sciences companies and in doing so have at one time or another appointed advisors to help them with M&A or other major corporate development events.

Now that we also work on the other side of the fence, we thought it would be an interesting exercise to collate our thoughts on where we went wrong and what our advice is to anyone thinking about appointing M&A advisors today.

Three common themes emerged…broadly summarised as “How”, “Who”, and “Why”.

1. How – understand how an advisor plans to add value

Every M&A advisor worth their salt will tell you that they add value. For sell-side deals this typically takes the form of promising to increase the sale value of your business. For buy-side deals it is harder to measure, but typically relates to promises to realise synergistic or strategic value for the buyer.

The trap many of us fall into is focusing on the number that is quoted as the “estimated achievable value”. Ultimately this is at best an honest guess based on imperfect information, at worst it is a cynical attempt to promise a high value and win a client – the only value that matters is the one that is achieved on completion.

Far more important than the estimate is how the advisor proposes to maximise the value achieved for you. Anyone can put a high number on a proposal, but not everyone can explain an effective strategy, show how they can execute that strategy, and demonstrate a track record of success doing the same. A number on its own is meaningless.

Useful questions to understand “how” include:

What types of companies present potential strategic value in a business combination?
How would you pitch my business to each of these groups to persuade them to engage?
What are the core pillars/objectives of your strategy to secure strategic premium?
What are the core workstreams you will lead to achieve these objectives?
What does this look like in terms of the process you would expect for my business?
Why are you best suited to run this strategy for us?
Why do you think you’re better placed than other advisors?
How much do you charge and what is your average fee to added value ratio?

The overall aim here is to understand how likely the advisor is to maximise the value that might be achieved.

2. Who – understand who on the advisory team will actually do most of the work

The traditional M&A advisory model is to put together an advisory team consisting of a partner, a couple of senior managers, and a number of junior analysts, all spending a reasonably large proportion of their time on the project. However, below a certain deal-size this model begins to break down. The fees are not high enough to support the deep teams that are required for larger projects and partners are forced to delegate a higher proportion of the work to the more junior members of the team.

The trap here is meeting the partner and senior managers during the pitching phase, whereas once the project begins >80% of the work is done by the more junior or mid-range analysts. Partners and senior managers turn up to key meetings, but they are not embedded in the detail as they would be on larger deals. One effectively ends up with some bright, but relatively inexperienced, analysts running the project with some senior support at key moments.

Unfortunately for this approach, smaller businesses tend to be more difficult to analyse, and more difficult to manage because they often haven’t yet been professionalised or had to cope with the demands of institutional investors. So, if anything, more senior input is required, not less. It simply isn’t appropriate to apply an advisory model designed for $1bn businesses to a $100m, $50m, or $10m business.

Useful questions to understand “who” include:

What deal size do you typically work on?
How many deals does the partner work on at any one time?
What is the role of everyone on the deal team?
Who will lead the deal and who will coordinate financial analysis?
Can we meet all the key members of the deal team?
What kind of access will we get to the partner day-to-day?
Who provides additional senior support as backup to the lead partner?

The overall aim here is to understand who in the team will be doing the key work so that you can assess their competence and whether you can work with them day-to-day, potentially for a year or more.

3. Why – understand the motivations and incentives of the individual advisors

You’ve established the advisors have a great strategy and track record, you rate and can work with the individuals that will be doing the day-to-day work, but how do you know the advisory team is truly and completely on your side and giving it their all?

Again, this is a real issue many of our team have seen in practice, there are stories galore of less-than-honourable or conflicted advice and examples of large advisory firms taking on small clients who are later neglected in favour of larger more prestigious projects. I will not share specific examples in print but please feel free to call and ask…

To mitigate the risk of receiving bad advice or a sub-standard service, one should 1) try to ensure one’s advisors are properly incentivised to achieve your objectives, 2) that the potential rewards are significant to them (i.e. your project is in their size “sweet spot” they are not likely to suddenly pick up a project that is 4 times as big), and 3) that they focus on projects like yours (i.e. your project isn’t an occasional “side project” for them and their main or preferred source of income is something else like working for repeat private equity or audit clients).

Useful questions to understand “why” include:

How are your firm’s fees structured so if we win, your firm wins?
How are you personally remunerated? What targets do you have to meet in order to achieve a bonus and/or promotion?
How are you personally rewarded if our objectives are, or are not, achieved?
What are your and your firm’s typical fee size/project size?
What are the smallest and largest deals you’ve worked on personally and your firm has worked on more generally?
Do you typically work for clients with our profile? Does your firm?
Do you have any repeat clients that are important to you? Does your firm?

The overall aim here is to understand what motivates the individuals working for you. You should gather enough information so you can assess whether or not they are properly incentivised to achieve the best possible result for you.

By bringing together the three strands of “How”, “Who”, and “Why”, you can move past a would-be advisor’s ‘elevator pitch’ to gain a strong understanding of the team that will be supporting your initiative, their strategy for success, and their alignment with your motivations in delivering an exceptional outcome.

Biosynth merges with Carbosynth

Fri, 31 May 2019 09:56:32 GMT

About Biosynth

Biosynth offers a product base of over 100,000 biochemicals for the diagnostics, pharmaceutical and chemical industries as well as food and environmental analysis. Its main production and HQ are in Switzerland, with sites in Slovakia, the USA and China.

About Carbosynth

Carbosynth is a supplier of carbohydrates, nucleosides, and biochemicals to research and development scientists in the pharmaceutical and biotechnology industries. Established in 2006 near Oxford, the company has operations in the UK, USA, and China, a catalogue portfolio of 150,000 products, and custom synthesis and contract manufacturing services.

CCD Partners’ role

We were engaged to find talent management solutions in order to facilitate the restructuring of the combined business post-merger. We introduced a number of candidates to Biosynth enabling the deal to proceed with certainty that there were a number of talent solutions available.

Steve Mothersole, CCD Partners, commented:

“We were delighted to have been chosen to source the next generation of leader for the business post merger. Having to attract senior talent to a business before a transaction concludes and, necessarily, needing to do so under conditions of extreme secrecy poses its own challenges. Despite this, I am delighted to say our team was successful in lining up several well-qualified candidates allowing our client to conclude the transaction with confidence in the future team. We look forward to working with the enlarged business going forward.”

How much should you pay an M&A advisor to sell your chemicals or life sciences business?

Thu, 23 May 2019 05:26:16 GMT

Sell-side M&A fees in the chemicals and life sciences industries – what to expect and what to look out for.

Owners of chemicals and life sciences companies have a range of options when it comes to choosing a partner to assist in the sale of their businesses. M&A advisors vary not only in terms of cost and experience, but also in the specifics of the service they offer.

To shed some light on the topic, I’ve prepared a high-level overview of typical sell-side M&A fees, breaking down what you might expect for your money and highlighting things to watch for when choosing a service.

Most owners of private chemicals or life sciences companies only sell a business once or maybe twice in their careers. Though there are a handful of serial entrepreneurs in the industry, there are notably fewer than in asset-lite sectors such as technology or media. As a result, I have encountered many business owners in the sub-$1bn chemicals and life sciences markets who have relatively little exposure to the world of M&A advisory services.

In fact, one of the biggest false preconceptions of the M&A industry is that advisors primarily or only act as brokers tasked simply with introducing buyers to the seller. This is an important part of the service but is by no means the whole story. This lack of familiarity with M&A services can lead to a) sellers paying for services they don’t need , and b) failing to realise the full potential value of their businesses by not paying for services they do need .

In an attempt to address this topic I have broken it down into four core questions which I will attempt to answer in this article.

These questions are:

How much do advisors charge?
What determines the range of fees?
What do sellers get for their money?
How should sellers in the sub-$1bn chemicals and life sciences industries choose an advisor?

As caveats to this article, firstly I should clarify that this is not an attempt to provide a definitive guide to all M&A fees. My observations are drawn from the collective experience of the partners in my firm, who together have worked on hundreds of M&A deals as both advisors and principals in the chemicals and life sciences sectors. However, our experience covers only a sample of the thousands of chemicals and life sciences industry deals in the last decade.

Secondly, I have tried to make this article as impartial and useful to business owners and managers as possible, but I do run an M&A practice and so should be considered fundamentally biased(!) and I apologise in advance for any errors I have made or perceived unfair aspersions I have unintentionally cast.

1. How much do advisors charge?

Sell-side M&A fees are often quoted as a percentage of the Enterprise Value ( EV ) of the company sold. The first thing to say is that the calculation of EV is often a subject of debate, but it broadly represents the value of an enterprise ignoring its ownership and financial structure.

In other words:

EV = Equity Value (i.e. what the shareholders will realise) + Net Debt

As a general rule of thumb, sell-side lead advisory M&A fees (in total, i.e. including all upfront and contingent fees) expressed as a % of EV follow the trend below:

EV of $0-10 million: >5.0%
EV of $10-100 million: 5.0% to 3.0%
EV of $100-1,000 million: 3.0% to 1.5%
EV of >$1 billion: 1.5% to 0.5%

This corresponds to what we see in the marketplace and appears to be supported by most available public sources, such as the following examples:

2. What determines the range of fees?

Fees across the M&A advisory community can be influenced by market sector, geography, or simply a firm’s individual pricing structure, but the most significant differentiator is usually the scope of the services the advisor is providing.

As briefly mentioned above, one of the biggest false preconceptions of the M&A industry is that service is uniform. In fact, sell-side M&A services vary markedly from one end of the market to the other.

There are many elements to fees, but by far the biggest cost for the advisory firm, and therefore the biggest determinant of the fees a seller might pay, is the time of the advisors themselves. The more time advisors spend working on a deal, and the more senior and experienced those advisors are, the more their service is going to cost.

3. What do sellers get for their money?

Broadly speaking, M&A advisors can be grouped into one of four brackets. For each bracket I have provided some comparative measures of typically expected sell-side performance, set against the ‘market average’ for an average $20m EV chemicals or life sciences company. As with previous guidance, this overview is based on my and my partners’ personal experiences and there may be advisory firms who do not fit neatly (or at all) into these brackets.

Bracket 1: Business Brokers

Service Provided = Broking Only
Clients per Year = 100 or more
Chance of Success = 10-20%
Value Expectation = 20-50% below the average
Total Fees as % of EV = 0.5% to 1.5%

A business brokerage service usually does little more than use its database of contacts or digital billboard to post a business for sale in the hope that someone relevant will see it and make an offer. The value offered by the broker is principally in the platform itself and the sellers must often do the vast majority of the sale work themselves (or hire additional resource). Although there are some success stories, generally we see relatively low values and high failure rates for sellers (a modified form of these services can be well-suited to investors searching for well-defined opportunities - not covered in this article).

Good for:

Very small / low value businesses,
Simple, easy to understand businesses, and
Sellers that are neither worried about confidentiality nor focused on value achieved.

Bracket 2: Execution Service

Service Provided = Broking Plus Execution
Clients per Year = 10-25
Chance of Success = 60%
Value Expectation = 10% above or below the average
Total Fees as % of EV = 1.0% to 3.0%

This level of service will normally involve taking a seller’s business through a pre-defined set of preparation steps, as part of a formula-driven “system” for selling companies, and then presenting the business for sale to the advisor’s established network of financial investors and any strategic buyers that may be identified by the seller.

Firms operating exclusively within this model will typically employ a higher ratio of junior to senior staff which, coupled with the blueprint-based nature of the work, can result in a cost-effective solution for sellers.

Good for:

Simple, easy to understand businesses,
Businesses for which there is a limited number of obvious strategic buyers, and
Sellers whose primary goal is not maximising the value achieved but rather a quick and simple process.

Bracket 3: M&A Lead Advisory

Service Provided = Broking Plus Execution Plus Strategy
Clients per Year = 5-10
Chance of Success = 75%
Value Expectation = Ranging from the average up to 30% above the average
Total Fees as % of EV = 2.5% to 5.0%

M&A Lead Advisory offers a more comprehensive solution than the previous two, covering all of the traditional ‘sale process’ steps, but usually stops short of fully exploring and providing insight into potential growth opportunities and will normally rely on a team of more junior M&A professionals to provide manpower along more traditional corporate financial lines.

This means that a pure ‘Lead Advisory’ firm will typically work with the seller’s business ‘as is’ and rely on the seller to provide insight into the strategic potential of the business.

Good for:

Larger and well-understood businesses,
Businesses for whom there is a limited number of obvious strategic buyers in well-understood adjacent markets, and
Sellers whose primary goals include selling at an above-average value.

Bracket 4: Full Service Partnership

Service Provided = Broking Plus Execution Plus Strategy Plus Insight
Clients per Year = 2-5
Chance of Success = >80%
Value Expectation = Ranging from 20% to 50% above the average
Total Fees as % of EV = 3.5% to 6.0%

In a ‘Full Service Partnership’, a completely bespoke team is assembled to partner with and complement the seller’s existing executives. This team will typically include M&A specialists, strategic consultants, and techno-commercial experts in markets adjacent to the seller’s (where the most synergistic buyers are often found).

The aim is to demonstrate the business’s full potential value to buyers by tailoring the sale message and setting out the synergistic opportunities. This approach typically involves a more intimate collaboration between seller and advisor, and a significantly broader scope of support including deep market knowledge and many contact points with potential buyers.

Good for:

Mid-market businesses in fragmented, diverse, and dynamic markets,
Businesses for whom there is a plethora of potential strategic buyers, some of which may be in less-well-known adjacent markets, and
Sellers who are committed to achieving a successful sale at maximum value.

4. How should sellers in the sub-$1bn chemicals and life sciences industries choose an advisor?

In my view, prospective sellers of a mid-sized chemicals or life sciences business seeking M&A support should:

Be pro-active – As long as you take basic precautions in being discreet, there is no downside in planning ahead of time and beginning conversations with advisors about your business’s strategic options. The worst possible scenario is that you are suddenly forced by some unexpected event into a sale process on someone else’s terms with minimal or no preparation.
Exercise choice – Research and choose the type of service you feel best fits your needs, including speaking to more than one type of advisor to compare. Nearly all advisors are delighted to discuss your needs and explain how they might help and many will also be happy to explain how they compare to others.
Negotiate and tailor - Advisor services (and fees) are nearly always negotiable. All firms will have their preferred way of operating, it is of primary importance that a seller and their advisor be in clear agreement at the outset of any engagement what the advisory partner is (and is not) providing and how the fees reflect the scope.
Incentivise – As with many things, you tend to get what you pay for. It is critical to ensure your advisor is incentivised financially to achieve your objectives (i.e. success fees) but also bear in mind that if you don’t show significant financial commitment to the project (i.e. in the form of paying for time charges or retainers as you go) then it will be extremely difficult for the more qualified and in-demand advisors to commit significant time to your project.
Beware loyalty - When it comes to realising the value of decades of hard work, choosing an advisor purely on loyalty grounds may be unwise. For example; a common choice of advisor is the corporate finance department of the incumbent auditor. Such advisors are typically execution-only and rely on a pipeline of audit clients to win work (rather than winning it on merit). Plus, there are many such advisors, if you do want such a service, almost certainly the incumbent is not the best out there.
Care about chemistry - Most M&A deals take months to complete and, unless you take the broking-only approach, involve many hours working closely alongside your advisors. Ensure you establish whom you will be spending time with and that you get on at a personal level. Fees are important, but so are relationships.

Top take-aways

Given there is such a range in styles and approaches to sell-side M&A services, it should be possible for all sellers to find their ideal advisory partner. The key is to know what is out there, how to differentiate between the options, and how to tailor your preferred advisor’s services to your circumstances.

So, in relation to the question “How much should you pay an M&A advisor to sell your chemicals or life sciences business?”, my top takeaways are:

There is a range of services available – The onus is on the seller to research, meet, and choose the best option for your business and your objectives.
Saving money on fees can be a false economy – Particularly in fragmented, diverse, and dynamic markets, the value increases achievable with higher levels of service nearly always out-weigh the costs.
Start the process of choosing an advisory partner before you need to – The reason many opt for the more stripped back options in the above list is simply that they are railroaded into them by unexpected events and a lack of time. Don’t let others benefit from the value you have built – find the time to plan your exit and lay out your options in advance.

The most important thing to do when selling a chemicals or life sciences company

Tue, 04 Dec 2018 00:00:00 GMT

Why a single compelling transaction narrative is critical to value

Owners of high-performing chemicals or life sciences companies are typically brilliant, passionate, hard-working and entrepreneurial. It is often this passion and drive that has been instrumental in building a company and selling its goods and services. In my experience it is also this passion and drive that means owners can sometimes be so deeply involved in the inner workings of their businesses they can find it hard, or don’t have the time, to properly communicate what makes their business great to potential buyers (a different prospect to selling the company’s products or services).

My team and I have reviewed data on many chemicals and life sciences companies over the years – often these data consist solely of a collection of corporate documents saved in a data room, or where there is a corporate presentation, it is often descriptive – verging on a “list of facts” about the business.

Whether we are advising the buyer or the seller, a crucial part of our job is the same, to make sense of the data and to identify the value of a seller’s business in combination with the buyer’s.

To illustrate the pitfalls here, and focusing on the seller’s perspective, the following sets out how simply presenting data to buyers can be detrimental to value, whereas pro-active identification and communication of a transaction narrative tying the data together can, in my experience, have a hugely positive impact.

When static data and descriptions alone are presented to buyers, the following threats arise:

Corroboration prejudice – it is human nature to seek validation of one’s own preconceptions. Buyers tend to be suspicious of facts that contradict their views and actively seek out facts that support them.
Unpredictable prioritisation – buyers with limited time often like to prioritise and identify the things that really matter, 'spot the key variables'. In a list of 50 or 100 isolated facts, buyers have no clear mechanism to do this and where their focus falls can be unpredictable.
Limited recall – I have often heard it said that people can typically only remember two or three standalone points from any given presentation, and given the above bullets, the two points that buyers do remember are unlikely to be the ones the sellers wanted.
Pattern gamble – as with the classic ink-blot psychological tests, buyers tend to make sense of highly complex data sets by overlaying familiar patterns. These patterns may or may not work in sellers’ favour, leaving it to chance is a gamble.

The solution to all the above is identifying and communicating a single internally-consistent transaction narrative that explains why these two companies are suited to one another. It is, of course, critical that the data support the narrative, but one must lead with the narrative.

Leading with a transaction narrative turns threats into strengths:

Positive corroboration – if you can establish a basic narrative that the buyer can follow and believe in, as you delve deeper into the transaction, supportive data will naturally be assumed to be correct and apparently contradicting data will be tested, if not disregarded entirely.
Predictable prioritisation – when seen in the context of a directional narrative, data that form part of the backbone are clearly distinguishable from data in less-relevant distant branches. Plus, if discussions do wander off-message, it is easier to guide them back.
Targeted recall – if all goes to plan, buyers will walk away remembering the key theme of your narrative, which by design, should incorporate all the absolutely key things you want them to take away.
Pattern recognition – with a narrative, the mass of information is set in a pattern from the beginning. Any other patterns the buyer may see in the data may still compete for the top spot, but the key thing is they start as a challenger, not the incumbent.

In summary, identifying and building a narrative, rather than a list of data, has several powerful benefits. In a competitive market, with lots of options, limited time, and a great range of opportunities good and bad, it is in everyone’s interest to pro-actively interpret company data and build a narrative that makes clear the real drivers of value in any potential transaction.

I will cover the “Five Golden Rules” of building an effective transaction narrative in another article – but in the meantime please feel free to contact me to discuss any of the above.

CCD Partners is a corporate development consultancy with expertise across the diverse and specialist markets of the chemicals and life sciences industries.

Selling your chemicals or life sciences business: why a slow process can erode value, and how to avoid it

Mon, 05 Nov 2018 00:00:00 GMT

If you are thinking about selling your privately-owned chemicals or life sciences business, it’s likely that there are several items vying for the top spot on your list of priorities.

Amongst maximising price, optimising deal structure, and securing a good home for employees – there are many factors at play in a typical divestment strategy.

It’s less common, however, for speed to rank highly as a concern for many sellers. Finding the right deal is rightly considered as the primary objective, and an emphasis on completing the process quickly may seem counter-intuitive to the concept of working patiently towards a successful completion.

In fact, speed has a critical role to play – in particular, minimising the length of time from first talking to potential buyers through to completion, in other words, your time “on the market”.

The more time a business is “on the market” the higher the risks and costs.

What are the risks and costs?

The following risks and costs all generally increase with time:

Transaction costs (lawyers, datarooms, accountants, M&A advisors and others)
Management distraction from their day jobs
Customer and supplier hesitance to trade with a company “on the market” – often overestimated, but still a factor in some cases
An unexpected issue arising that jeopardises the deal (e.g. profit dip, or Brexit votes!)
‘Deal fatigue’ wearing down all involved (I was once brought in part-way through one deal that ran in total to an enthusiasm-sapping 30 months…)

Top 5 deal speed strategies

The overall aim is to minimise the time the business is “on the market”. This means every stage of a successful sale - from business preparation through buyer engagement and due diligence - should be optimised with this aim in mind.

Prepare materials thoroughly in advance of approaching potential buyers - marketing materials and key backing data should be in almost final form before going to market. I find sellers can experience frustration during this period as they are keen for progress, but experience shows time spent in this stage can be invaluable later.
Research and plan your engagement strategy - many buyers will publish their growth strategies and priorities, others you or your advisors may know already. Research and informal conversations (i.e. without revealing a specific project) can a) provide guidance on what potential buyers would like to see, and b) tell you if the timing is right – it is better to pause before going to market than to frustrate buyers with a stop-start approach (on one of my projects I was aware that the head of M&A at our most likely buyer was about to change, so we delayed a month to let the incoming executive get his feet under the desk).
State timetable aims to all parties in advance and maintain momentum - it is crucial that your deal team controls the process and drives it forward as best fits your interests. Effective communication is key here as even keen, motivated buyers need fair warning to get all their own ducks in a row at each stage of the process.
Advance multiple workstreams simultaneously - in theory, negotiations, buyer due diligence, and legal drafting can all be progressed concurrently, and these phases can be sped up by pro-active sell-side work (e.g. drafting the SPA or providing a vendor DD pack). This shouldn’t be seen as the seller being “too keen”, it is simply good process management and the benefits usually far outweigh the costs if you are committed to finding a deal.
Be prepared to sacrifice complete certainty in exchange for speed - sometimes a choice must be made between spending additional weeks locking down the terms of a deal and driving forward towards the close. A careful cost/benefit assessment should be made for any proposed delays or extensions.

Key to capturing value

Once “on the market”, speed of execution ranks among several key factors which can have a dramatic impact on the ability of shareholders to realise the full value of their business.

Careful planning and preparation for a sale process that moves swiftly once buyers are engaged, minimises opportunities for value erosion and deal failure. As Benjamin Franklin once said –

“An ounce of prevention is worth a pound of cure.”

When is analytical commercial due diligence not enough?

Mon, 24 Sep 2018 00:00:00 GMT

Complex, evolving, and fragmented markets display the qualities of chaotic systems – such as certain strata of the chemicals and life sciences industries. When contemplating mergers and acquisitions (M&A), data-driven analytical commercial due diligence typically favoured by non-specialists can fail to properly prepare investors and sellers alike.

Commercial due diligence ( CDD ) is the process undertaken to assess a company’s commercial attractiveness. Sometimes this work is undertaken by in-house commercial teams and consultancies offering an add-on service (e.g. large accountancies/banks) who may not be specialists in CDD or the target’s sector or niche market. In such cases it is common for an analytical, data-based, approach to be used to assess the target’s situation and market and use this to project its likely future performance.

This analytical approach can be effective in some circumstances. However, in a chaotic system, it is insufficient to appraise an investor of the risks and likely performance of a target, and furthermore, misses a golden opportunity to identify and capture additional strategic value. For this, a different approach and a very particular set of skills and experience is required.

The chemical butterfly effect

Chaos theory tells us that small changes in starting conditions can lead to radically different outputs. Or, in the words of the late Edward Lorenz;

“Chaos: When the present determines the future, but the approximate present does not approximately determine the future.”

Even when one knows the approximate current state of a chaotic system, this is not enough to make meaningful projections of the future. This chaotic effect can arise from a combination of underlying patterns, feedback loops, self-organisation, compounding, inter-dependence and other such factors.

The chemicals and life sciences industries are just such a system. New technologies and companies are continually entering, products rise and fall, regulations loosen and tighten, and long complex supply chains can flip and change. So, even in a steady state (i.e. assuming no M&A), substantial gains and losses can occur, with slim margins determining one way or the other. This makes prediction challenging.

Providing real insight into likely future performance and assessing the determining factors and potential risks is therefore of great value to business leaders and investors. So how can real insights into contemplated M&A deals be achieved?

Reaching beyond the analytical approach

The analytical approach may involve a team of analysts writing (or buying) standalone market reports, analysing financial data, interviewing key customers and market players, and using all these data to project the likely performance of the target.

At the upper end of the market, where companies are more established and standardised information is more readily available, meaningful insights can be drawn from this data-driven approach. However, at the lower more “chaotic” end of the market, where companies are often fast moving and privately-owned with limited non-standard information, it is a different story.

Even when data-driven work is useful, it is only half the picture. A core value of CDD is looking beyond the isolated steady-state assessment of a target and into the impact of refinancing or merging the acquiror and target’s businesses and what the knock-on effects would be of the new business on its wider market. For example, a refinancing may facilitate new leadership, investment in new assets, or the ability to buy up smaller competitors and take on larger clients, and a merger may allow rationalisation of operations, more efficient use or control of resources, restructuring of supply chains, domination of a niche market, control of a field of technology – the list goes on.

This is where specialist CDD consultancies really come into their own. Such firms focus on a single defined market (e.g. chemicals and life sciences) and often have multiple senior individuals with executive-level experience across a range of industry niches.

These individuals have real practical experience of the niche markets in question, have access to current market players, understand the operational and supply chain aspects of the market, understand the regulatory regime of the market (which can vary country by country), and have a feel for what makes a good, well-functioning company in that niche.

Specialist CDD firms typically bring together a team of such individuals, one for each relevant niche. In this way, specialist CDD firms can a) provide real insight into the value drivers and risk pitfalls of any given business combination, and b) help identify and capture additional areas of value that may not be readily apparent to the target’s or acquiror’s own industry experts working in isolation.

For example, additional areas of value might include identification of:

adjacent market segments for expansion
operational and managerial synergies
customer and supply chain opportunities
potential for technological disruption of other left-field markets

In pursuing this value-add approach, specialist CDD firms have found that it works best if they consider all the market, commercial, operational, integration, environmental, and M&A strategy aspects of a potential deal. This strategic insight-led approach is simply not possible for non-specialist teams focused on number-crunching.

So, while there is still a place for the analytical approach at the upper end of the market and in simpler industries, in chaotic markets it should have a limited if not negligible role.

A final thought to take away

The strategic insight-led approach can also be applied to great effect on behalf of sellers. Combined sector-specialist CDD/M&A teams can properly prepare a seller both by drawing out the generally attractive aspects of their business and by assessing the specific strategic potential that may exist with any given suitor.

Neither buyers nor sellers should approach the negotiating table before they are fully armed with the risks and rewards of the deal for both sides.

How are privately-owned chemicals or life sciences companies valued?

Thu, 06 Sep 2018 00:00:00 GMT

For many founders, entrepreneurs, and family-owners, understanding how to value companies in their sector is a primary focus when considering exit options. However, whilst it is important to have an awareness of the standard toolkit of valuation models, private owners in the chemicals and life sciences sectors are missing a trick if they don’t get to grips with the underlying drivers of value and how they apply to their own unique business. When it comes down to it, “discounted cashflows”, “IRRs”, and “EBITDA Multiples” (among many other such valuation metrics) are really just mechanisms or tools for negotiation.

Putting ‘value’ in context

We should also at this point temporarily digress from the concept of ‘value’. Value is a somewhat hypothetical, abstract concept. What really matters is the price that a willing buyer pays to a willing seller. There are two fundamental drivers to the price a buyer is willing to pay:

A buyer will not pay more than:

they believe a business is worth to them (its ‘value’ to them); and
the minimum amount they think they have to pay to secure the deal.

Understanding these drivers (combined with a similar pair for sellers) can guide sellers on likely upper and lower price limits and provide a framework to maximise price.

Maximising price via the second driver – i.e. making buyers think they have to pay more to secure a deal – is a key theme of my previous article on price chipping and I will elaborate on this further in the future. However, for the remainder of this piece, I will focus on the first, more aspirational, ‘value’ driver.

Moving beyond the default

The most widely-used valuation technique in the chemicals and life sciences sectors (and many others) is to apply a generally accepted ‘comparable multiple’ to the most recently available historic profits of a business.

If sellers are not pro-active in taking steps to move past this approach, they risk their businesses being confined to an initial valuation which not only determines value based on historic performance (sometimes a year or more out of date), but also superimposes a generalised multiple calculated as an average over a wide range of different businesses, many of which may not be relevant to the seller’s business. There is no such thing as an ‘average’ business so this technique can only ever be, almost by definition, a very rough guide calling out to be tailored.

Whilst sellers are advised to understand the fundamentals of this model so they can identify aspects of their business that should command a premium (for instance if they have above-average revenue growth or profit margins), stopping here can mean missing out on the key part of the first driver. The key part is the “… to them …”, i.e. what is the value of your business to that specific buyer, what do they have that is complementary to your business? Valuing a business in isolation fails to take into account this additional strategic value. Of crucial importance therefore is to include the value of a business in combination with that of the buyer, i.e. synergy value. In the chemicals and life sciences sectors, where sources of synergy can be many and varied, this is of particular importance.

Demonstrating value through synergy

Synergy is derived from the reality that an acquisition represents the creation of a new entity with new properties, resources and capabilities. Under new ownership, a business may have increased access to capital for investment, greater market access, opportunities to improve profitability through cost savings, or a higher appetite for risk and accelerated expansion. Each of these factors, and many others, create value specific to each buyer’s unique profile.

Realising maximum value in an exit for a seller is typically dependent on understanding the value driving attributes and potential sources of synergy across multiple potential buyers and identifying the possible synergies with each in order to create compelling investment cases tailored to specific groups or individual buyers. In chemicals and life sciences, with their many niches, technologies, and end-markets, sector experience and an extensive network are key here.

A pro-active approach to valuation

For many owners an exit represents a once-in-a-lifetime opportunity to extract life-changing amounts of capital from their business. Valuing a chemicals or life sciences company in isolation, i.e. without looking at the value of the business in combination with the buyer’s resources, as we have seen, can constrict a seller to operate within the confines of a one-size-fits-all valuation which fails to address strategic value. If contemplating a sale or exit, sellers should take steps both to secure the standalone value of their business, and to target additional synergy value. In this way, above-average results for privately-owned chemicals and life sciences companies can be achieved.

How to respond to an unsolicited buyer approach – and eight steps to prevent chipping

Tue, 14 Aug 2018 00:00:00 GMT

What should you do if approached by a potential buyer offering at or above market terms and promising a quick, friendly, and discreet process? Unsolicited approaches can sound too good to ignore, and some prove successful, so is it a risk worth taking?

You are the private owner of a profitable chemicals or life sciences company. A company or investor you already know (or at least have heard of) has come forward and expressed an interest in buying your business. They are offering above market pricing and hinting at “synergy value”. They have said there is a clear rationale for acquiring your business and would like to “explore further”, initially by exchanging some basic information. Is there any reason not to engage, what could go wrong by starting a conversation?

First, being approached is a great sign as it indicates that your business is prima facie attractive to acquirers. It also means this prospective acquirer has identified your business as (potentially) being right for them. Lastly, they found you, which is a direct saving of the time, effort, and expense that pro-actively approaching the market yourself might require.

However, unless business owners respond in the right way and take risk mitigation steps, this “saving” is nearly always a false economy that can end up costing millions.

What are the potential costs?

Price terms and chipping

The greatest risk you run as a seller entertaining a single offer comes from the loss of negotiation power which can lead to significant reductions in the price and terms. Buyers are usually bigger than you, can afford to approach multiple targets at once, and incur relatively modest costs reviewing your information. You, on the other hand, are smaller, will have to spend months of man-time compiling information that you don’t normally produce, and your only other option might be to walk away. It is no surprise that buyers often have the upper hand in these situations.

There is normally talk of agreeing headline terms and setting out a timeline, which culminates in a 2-4 page “heads of terms” document setting out the proposed deal. This is typically the same (or a little worse) than the original verbal offer and there will invariably be some quite woolly language about due diligence. At this point exclusivity is very likely to be requested by the buyer, both sides hire lawyers and other advisors and start incurring more serious costs.

The further a seller follows this path the more power the buyer has. Buyers that were initially friendly and reasonable can increasingly seek to reduce the initial terms or “re-interpret” the deal. I have seen cases where the final price has dropped by more than 40% from initial indications and the seller has still accepted, pointing to the amount of time and effort already expended and the reasoning that “any other buyer would make the same adjustments”.

Unrealised potential

In short, it is extremely unlikely that the one pro-active buyer that approaches you is the only one that can see, and is willing to pay for, the maximum strategic potential your business represents. If sold in the right way with the right preparation, private business owners can see values far in excess of the sector average or “fair market” value.

To give this topic the attention it deserves will take a separate dedicated article (or book!). So for now, I will simply try to focus on methods to mitigate price and term chipping, rather than the broader challenge of value maximisation (although inevitably there is some overlap).

Respond on your terms

The ideal way to respond to an unsolicited approach depends on your objectives and frame of mind:

If you have no urgent intention to sell , don’t immediately turn buyers away, they and the information they provide might be extremely valuable to you in the future. You should try to find out why they are interested, their strategic rationale, and their timing. When potential buyers approach, enquire and record in order to build friendly arm’s length touching points for the future.

If you are seriously considering sale options but are unsure , do not be tempted further down the ‘rabbit hole’ of providing them more and more data. Instead, you should take some time to step back and analyse your business’s full potential and the strategic options open to you. I won’t dwell on this point too much (see above re unrealised potential), but typically this process will conclude that either you should a) continue as you are, b) start preparing for sale in a year or two, or c) start preparing for immediate sale.

The top eight steps to mitigate chipping

Once you decide to pursue a sale , there are eight main options available to try and keep a buyer honest. The more that can be applied, the more likely the buyer(s) are to stick to their original pricing and terms. These are, in order of ascending power, as follows:

Vet the buyer(s) – do they typically act with integrity? Do they have a good reputation in the marketplace? Do your advisors have insight into whether they behave sensibly behind closed negotiating doors? If you have multiple options, filtering is recommended.
Ongoing relationships – if a buyer thinks an ongoing relationship with you or, perhaps more likely, your advisors is valuable, they are less likely to risk torching it in the interests of securing a lower price or better terms during your deal.
Option to walk away – wherever possible, try to maintain both a perception and a reality that you don’t absolutely need to sell and can simply walk away if the terms aren’t right.
Vendor due diligence – sometimes it can make sense for a seller to front the cost of due diligence. As well as making the business more attractive, it can create the perception of an auction (see 8), and it can reduce the chance of surprises and excuses (see 6 & 7).
Professional advisors – in addition to their general positive impact on all the steps listed here, the simple fact that you have appointed specialist advisors means buyers will know that non-market and unusual adjustments will get short shrift, so they are less likely to try.
No surprises – business sales are highly complicated transactions, misunderstandings (both accidental and deliberate) are rife. Sellers should reconfirm pricing and terms in writing whenever any significant new information arises.
No excuses – buyers will often be looking for excuses to chip. The first defence is to not provide any. Leadership should be focused on maintaining trading in line with forecasts and all risks and “dirty laundry” should be disclosed to buyers before any ‘final’ pricing is agreed.
Competitive tension – by far and away the most powerful tool available to sellers is the ability to say things like “ok, you can deduct the operating lease as a debt, but I have several other prospective buyers that haven’t taken the same approach - so we will probably move forward with one of them”. Competitive tension is best applied with all buyers running at the same stage (a significant challenge in itself!) but can also be applied less directly with “chaser” auctions and other similar staggered processes.

All eight steps, when applied correctly to private chemicals and life sciences companies, can easily prevent chipping of 40% or more which far exceeds the typical costs involved (usually less than 5% of Enterprise Value). Furthermore, most of the steps above are a natural result of proper preparation and value maximisation strategies which can in themselves have a significant additional positive impact on value.

The real trick here is for business owners to be aware of these steps and to take a pro-active approach. Doing so takes the upper hand away from buyers and gives sellers more power, crucial when negotiating life-changing transactions.