This article appears in full in the July/August 2016 issue of Middle Market Growth.
As huge M&A deals in the chemicals sector draw headlines—such as Dow Chemical/DuPont and Syngenta/ChemChina—we shouldn’t underestimate the effects on smaller producers of continued consolidation at the top of the market. Larger players will be looking to divest non-core assets or divisions focused on specialty niches. They’ll be looking to restructure or meet the expectations of shareholders and boards, which, across the industry as a whole, have been pressuring companies to generate more value. On top of that, other businesses within the middle market are looking to merge so they can scale and achieve more efficiencies.
All these trends create opportunities for private equity buyers. PitchBook data reveal that many firms already have been seizing the chance, with 70 PE deals completed in the space last year alone, including high profile transactions such as Golden Gate Capital’s $1.22 billion carve-out of ANGUS Chemical in February 2015. That deal in many ways represents a convergence of the trends mentioned above, as ANGUS focuses solely on the manufacture and distribution of nitroalkanes and their derivatives, products used in the pharmaceuticals industry. But it’s not just carve-outs or divestitures that PE firms can capitalize on; they can also roll up businesses in fragmented segments. Bidding by strategic buyers will keep the biggest opportunities highly competitive, but that only renders the middle market more attractive.