October 18, 2019

Next wave of chemical M&A to see mid-size companies buy corporate carve-outs – banker

Author: Joseph Chang

2019/10/17

NEW YORK (ICIS)–The next wave of mergers and acquisitions activity in the chemical sector will involve mid-size companies buying non-core assets being divested by larger companies, an investment banker said on Thursday.

“Although there are more mega deals to come within the chemicals industry, there has been a noticeable shift to undertake smaller acquisitions and divestments that target specific portfolio shortcomings and deliver tangible results in the short and mid-term,” said Chris Cerimele, managing director at investment bank Balmoral Advisors.

“It is expected that going forward, the next wave of M&A in the chemicals industry will involve mid-sized companies buying some of the non-core assets of the new mega companies,” he added.

One example would be PolyOne’s rumoured potential acquisition of Clariant’s masterbatches business.

“With five acquisitions in the past two years and 10 in the past five years, PolyOne has been using acquisitions to augment growth in the Engineered Materials, and Color, Additives and Inks segments… We think the Clariant assets could… help accelerate the development of higher-margin innovations and support sales growth 100-200 basis points (1-2%) above end market trends,” said Laurence Alexander, analyst with Jefferies.

A PolyOne/Clariant masterbatches tie-up at $1.5bn could generate a 9.0% return on invested capital (ROIC) by the third year assuming a 5% synergy target and a 2% cost of debt, he noted.

“Specialty chemicals assets are still desirable and companies are looking for good strategic fits,” said Cerimele.

“Meanwhile, private equity firms are still as active as ever, especially those that are building on existing platforms. They are starting to hire advisors for add-ons to portfolio companies,” he added.

Continuing consolidation in specialty chemicals is decreasing the number of high quality targets for acquirers, driving up trading multiples, said the banker.

In Q3 2019, the average transaction EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) multiple for specialty chemical deals was 11.3x versus 9.1x for all chemical deals, according to Balmoral Advisors.

“There are fewer quality acquisition candidates, so when they do come on the market, there’s lots of competition,” said Cerimele.

“With a wealth of strategic acquirers active across the globe, in addition to a well-funded private equity market, we will continue to see healthy M&A activity for the remainder of 2019,” he added.

Specialty chemicals sectors in demand include personal care, cosmetics and food ingredients as well as coatings and anything related to CASE (coatings, adhesives, sealants and elastomers). Natural ingredients businesses in personal care and food ingredients in particular attract a great deal of attention.

On the other side, assets heavily concentrated on struggling sectors such as automotive and construction are facing more scrutiny from buyers, he noted.

Interview article by Joseph Chang

https://www.icis.com/explore/resources/news/2019/10/17/10431394/next-wave-of-chemical-m-amp-a-to-see-mid-size-companies-buy-corporate-carve-outs-banker

October 16, 2019

Foamers Making Beds

A good article: https://bedtimesmagazine.com/2019/10/the-new-fundamentals-of-foams/

An excerpt:

From foamers to bed builders

Perhaps the biggest foam trend has less to do with foam bedding components themselves and more to do with the changing role of foam suppliers, who, along with their sewn cover supplier counterparts, have become bedding manufacturers in their own right.

For some foam suppliers, the vast majority of their business now is producing finished foam beds, typically boxed — and often handling fulfilment, too — mostly for direct-to-consumer e-commerce companies but also for more traditional bedding makers and retailers. Even foamers that still concentrate on pouring say they now offer finished mattresses.

NCFI The Cure mattress uses copper — At the Summer Las Vegas Market, NCFI showcased a hybrid mattress with copper throughout — in the foam comfort layer, in the springs and in the ticking.

NCFI, which produces both components and finished beds, has opened a wholesale showroom at the Las Vegas Market’s World Market Center to showcase its finished mattresses, including hybrid models, and introduce its foam advances. At the summer show, the company unveiled a new look and lineup for its BedInABox brand, which it bought in 2018. For the BedInABox line, NCFI produces the foam, manufactures the beds, packs and ships them — full service and in-house.

“How we go to market is like most foam companies right now: We make foam for bedding producers and we make finished mattresses,” says Chris Bradley, NCFI executive vice president for consumer products. The company, based in Mount Airy, North Carolina, has a flexible polyurethane foam production center at its headquarters, plus another plant in Hickory, North Carolina, and two others in Dalton, Georgia, and Salt Lake City.

Bradley says producing finished mattresses is helping foam suppliers better understand the needs of mattress manufacturers, retailers and, ultimately, consumers, and is helping to drive foam innovations.

The main part of Latexco’s bedding business continues to be components but the finished mattress segment — in the company’s case aimed at business-to-business customers rather than the direct-to-consumer channel — “is growing every day,” says Brent Limer, chief sales officer for Latexco U.S. Holdings LLC, which has headquarters in Lavonia, Georgia, and another U.S. manufacturing facility in Phoenix. The company offers a variety of polyurethane, visco and high-resilience foams, as well as latex.

foam buns on shelves at a Latexco warehouse — Latexco offers a variety of polyurethane, viscoelastic and high-resilience foams, as well as latex.

Similarly, Future Foam remains first and foremost a foamer, but also builds finished beds to meet customers’ design specifications and offers a private-label, good-better-best boxed program through its plants in California, Massachusetts, North Carolina, Texas and Wisconsin, says Brett Almquist, regional sales manager for the Council Bluffs, Iowa-based company. Future Foam has 25 U.S. facilities, including six pouring plants; a pouring and fabrication plant in China; and a foam recycling facility in Germany.

Future Foam also is developing a proprietary Allay foam line for a top-of-bed program out of its plant in Fullerton, California, pairing mattress toppers and pillows, Almquist says. “It allows customers to customize their entire product line,” he says. “There’s a lot we can do to customize comfort layers and molded pillows — coat them with PCMs (phase-change materials), aerate them with pinholes, infuse them with thermal conductors, and add fragrances like lavender and even coconut.”