CFI Group is pleased to present the Specialty Chemicals Valuation Snapshot for the first semester 2024. This report provides commentary and analysis on current market trends and M&A activity within the Specialty Chemicals sector.
Spotlight
•Europe remains a key region but is grappling with weak global demand and low capacity utilization. Gradual improvement is evident with EU chemical production showing steady growth since August 2023, climbing 2.4%-4.3% year-on-year (YoY) in early 2024. Though volumes are still below pre-pandemic levels, the decline of energy prices and increased demand from China signal hope for the European chemical sector’s mid-term performance. As a trading partner, however, India seems to grow in importance. Though a bit on the sideline from a pan-European perspective, the new free trade agreement established between the European Free Trade Association (EFTA) and India could be an important steppingstone for further co-operation.
•In India, the chemical sector continues to demonstrate resilience, with projected growth of 7.0%-8.0% for 2023-2024, surpassing broader economic growth forecasts. India’s recovery is underpinned by robust domestic demand, particularly after emerging from COVID-19 lockdowns. Expansionary trends in output and new orders, alongside new production capacities coming online, are set to support growth. However, market volatility, fluctuating global trade flows, and unstable upstream pricing remain concerning.
•Despite a sluggish start to M&A activity in early 2024, momentum is building. Deal volumes showed a modest recovery from the 10-year historical lows seen in 2023. Although challenges such as high borrowing costs and geopolitical tensions continue to suppress deal-making, there are clear signs of potential growth. A significant shift is expected in the second half of 2024 as central banks begin to lower interest rates, potentially unlocking more opportunities especially for financial investors. Private equity houses, still disposing of significant “dry powder”, are positioned to play an increasingly prominent role in sector consolidation. The demand for specialized products, innovation, and sustainable solutions offers promising opportunities, especially in the high-demand specialty chemicals market. As economic conditions improve and decreasing interest rates, we expect heightened competition among private equity and strategic acquirers, who have held back due to market uncertainty.
•In conclusion, despite the turbulence of recent years, the specialty chemicals sector is well-positioned for a rebound. The long-term outlook remains positive, with strategic M&A moves expected to yield significant returns. The current downturn appears to be temporary, and it is increasingly clear that the sector’s recovery is not a question of “if” but “when.“
Global Trading Multiples
After a substantial decline in valuation multiples in 2023, particularly in the first half of the year, both TEV/Revenue and TEV/EBITDA multiples showed an improvement in Q2/24. Median TEV/Revenue increased by +29% YoY, while TEV/EBITDA rose by +9.3% YoY.
The Commodity Chemicals sector saw the most notable rebound in TEV/Revenue multiples, rising from 0.9x to 1.3x (+53.4% YoY). In contrast, the Construction Chemicals sector experienced a decline in TEV/Revenue multiples (-6.3% YoY).
TEV/EBITDA multiples generally increased across sectors, but the overall picture is mixed. Agrochemicals showed a substantial jump from 3.8x to 7.8x, more than doubling its previous multiple, though from a historically low level. Basic Petrochemicals, Cosmetics Chemicals, and Paints & Coatings diverged from the trend, posting reduced multiples.
Pharmaceuticals continue to maintain the highest valuation multiples, despite previous declines. While TEV/Revenue multiples show a slight increase, expectations point to a slow rise in valuations throughout 2024. However, the potential impact of large reserves held by pharmaceutical buyers may suggest a downcycle1.
Basic Petrochemicals saw a slight decrease in its TEV/EBITDA multiple (YoY -2.7%) but an increase in its TEV/Revenue multiple (YoY +6.1%) compared to Q2/23. This suggests improving profitability after a challenging economic environment, as destocking, particularly in China2, comes to an end and demand cautiously picks up, signaling a mild recovery for the sector.
Similarly, Cosmetic Chemicals and Paints & Coatings reported declines in TEV/EBITDA multiples (-9.6% and -11.4% YoY, respectively), while their TEV/Revenue multiples slightly increased. This mirrors the trend in Basic Petrochemicals, indicating stronger profitability and suggesting modest improvements in general market conditions, not (yet) fully reflected in the M&A and stock market.
In contrast, Construction Chemicals exhibited a significant rise in TEV/EBITDA multiples (YoY +21.4%) alongside lower TEV/Revenue multiples (YoY -6.3%), bucking the trend observed in Basic Petrochemicals, Cosmetics Chemicals, and Paints & Coatings. This divergence is reinforced by the unfavorable market outlook for the construction sector in the near future3 which seems to have started in Europe, but now is spreading globally.
Looking ahead, the chemicals sector is poised for a complex landscape towards the rest of 2024. The rebound in valuation multiples for Commodity Chemicals and Agrochemicals suggests a positive trend, signaling potential growth and increased profitability. Basic Petrochemicals, Cosmetics Chemicals, and Paints & Coatings are likely to continue their gradual recovery, driven by improving market conditions and ending destocking cycles – a trend that seems to bypass the construction sector and therefore construction chemicals.
Global Transactions and Multiples
The median EV/EBITDA multiples in the Basic Chemicals sector have risen in H1/24, although transaction volumes have not returned to the peak levels observed in H1/22. Since H1/20, transaction numbers have surged by 404.5%, from the all-time low, driven by the pandemic. However, with fewer transactions disclosing their multiples in H1/24 compared to prior periods, the data has become more volatile, resulting in considerable fluctuations in multiples over recent periods.
The sharp increase in the median EV/EBITDA multiple in H1/24—more than doubling compared to H2/23—suggests a potential shift toward higher-quality assets, as fewer but more strategically significant transactions have been completed. With interest rates coming down again, larger-scale financing could become more attractive, fueling deal activity. However, chemical companies continue to face challenges as customer preferences increasingly prioritize decarbonization, adversely affecting profitability.
The sector remains characterized by fluctuating transaction volumes and shifting market dynamics. As companies focus on sustainability and cost efficiency, the trend towards acquiring strategically valuable assets is likely to persist in the near future.
The M&A landscape in the Specialty Chemicals sector has experienced a slight decline in transaction numbers, accompanied by an increase in multiples compared to H2/23. This trend is partly fueled by private equity showing stronger interest4.
The Argos Index®, which tracks mid-market transactions involving financial buyers, indicates a modest recovery in multiples5. Still, the overall trend remains downward from the record-highs in 2022. Strangely, financial investors currently seem to be paying higher multiples than strategic buyers — underscoring the increasing interest of private equity in the sector and the amount of “dry powder” available.
Data from the Specialty Chemicals sector also is distorted by limited disclosure of multiples. The mid-market experiences pronounced polarization in paid multiples, with transactions concentrated at either the higher or lower ends of the spectrum. This divergence reflects a widening valuation gap, as high-quality deals command premium prices.
Looking ahead to H2/24, private equity’s growing presence may continue to shape the M&A environment and support transaction numbers as well as multiples paid.
Global Deal Volume
Global Deal Activity – Overview
•In the global landscape of M&A activities within the specialty and basic chemicals sectors, notable trends emerge across different regions.
•In the Specialty Chemicals sector, Europe stands out with the highest number of deals, showcasing strong market consolidation and strategic acquisitions. The U.S. follows with a significant yet more measured level of activity, reflecting a stable interest in the sector. Asia, though participating at a more conservative level, shows notable contributions from countries like China, India and Japan, highlighting these markets’ growing importance in the specialty chemicals space.
•In the Basic Chemicals sector, Europe again leads the way with the most transactions, reinforcing its position as a hub for chemical industry mergers and acquisitions. While the U.S. shows significant activity, it is slightly less vigorous compared to Europe. Asia, with contributions from China, India and Japan, shows a more moderate level of activity in this sector, indicating steady engagement in the global chemicals industry.
•These trends reflect Europe’s leadership in chemical sector M&A, with the U.S. closely following, while Asian markets continue to gain momentum in both specialty and basic chemicals sectors, signaling their increasing significance in the global chemicals market.
