Boston, MA – Capstone Headwaters released its September Chemicals Update today, reporting that demand has bottomed out in Q2 as shown by leading Chemicals public companies’ earnings commentary, with a resurgence pending the containment of the virus. As economies continue to reopen, downstream demand is expected to recover, with gains in the U.S. Specialty Chemicals market driven by cosmetic additives, electronic chemicals, and flavors and fragrances. Weakened downstream demand among Automotive, Construction, and General Industrial markets were partially offset by steady demand for synthetic materials for non-wovens in personal protective equipment (PPE), disinfectants, pharmaceuticals, medical plastics, and food and beverage ingredients.
With production near full capacity across the U.S., chemicals manufacturers have seen the U.S. feedstock advantage return, albeit at less cost-efficient levels seen in previous years, following the unprecedented oil & gas price volatility that resulted from the COVID-19 pandemic and the end of production restraints from OPEC+ producers.
“We are seeing increased M&A activity in chemicals & plastics, in particular, specialty sectors including food ingredients, compounded plastics, and advanced materials for coatings, adhesives, sealants, and elastomers (CASE) and other demanding industrial applications. Strategics and financial buyers are looking for new growth platforms to enhance or reposition their existing businesses and establish new footings in attractive sectors,” commented Doug Usifer, Managing Director of Capstone Headwaters.
David Bench, Managing Director of Capstone Headwaters, added, “Private equity sponsors are well positioned to assume a greater role in chemicals M&A in the near- and mid-term by tapping into over $1 trillion in committed capital and demonstrating their restructuring and operational efficiency chops. Unfolding events of the pandemic and resulting recession will create circumstances of lower valuations and corporate divestitures that will be ripe for sponsor-lead M&A activity.”
Global merger and acquisition (M&A) activity in the industry fell 3.6% year-over-year (YOY) through July, with a notable slowdown in May. Buyers have predominantly sat on the sidelines as the pandemic swept across the globe, internally focusing on preserving liquidity and assessing operational impacts. However, several notable deals, such as INEOS’ acquisition of BP’s Petrochemical business (June, $5 billion) and SK Capital’s acquisitions of Techmer PM (July, Undisclosed) and Baker Hughes’ Specialty Polymers (July, Undisclosed), present evidence that buyers are returning to the table, albeit with tightened criteria and valuation expectations.
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