Valuation gap between specialty and commodity deals widens

The valuation gap between specialty chemical and commodity chemical assets is widening as buyers become more selective, an investment banker said on Friday.

“There is a pronounced valuation difference between specialty chemicals and everything else, and it’s getting wider as we get later in the cycle,” said Omar Diaz, managing director at investment bank Seaport Global Securities.

“For some sellers of commodity businesses, it’s becoming hard for them to swallow that bitter pill,” he added.

Even smaller specialty chemical deals of $50m and below where the target has unique technologies can command enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of 10x or higher, he noted.

In contrast, more commodity deals can range from 6-8x EBITDA.

M&A activity has fallen off a bit and “valuations are starting to get just a tad softer with buyers becoming more discriminating at this point in the cycle”, said Diaz.

However, deals continue to get done with assets from large companies seeking to optimise their portfolios coming to market and both strategic and private equity buyers active, he noted.