Finding the Right Deal a Lot Harder Than Getting Financing

For those seeking to make acquisitions in the chemical industry, all of the effort should be focused on a single overriding goal – finding the right deal.

While getting the financing for a deal is also of critical importance, particularly for smaller companies and individuals, it is also relatively easy to do once a good deal has been landed.

There are hundreds of banks, equity investors and other sources of financing who are eager to lend or invest in a good chemical deal.

As illustrated above however, the pickings are slim when it comes to being able to find a good deal.

In the article that follows, we will explore this subject in more detail.

Finding Deals and Financing Deals


The Hard Part – Finding a Good Deal

For those experienced in acquisitions in the chemical industry, it is no secret that a good deal is hard to come by. Here are some of the reasons why:

Competition for good companies is keen – A profitable, growing chemical business that is not too small is in very high demand. Most large chemical companies seek acquisitions as a vehicle for growth. In addition, there are scores of medium and smaller chemical companies looking for acquisitions. And on top of all this, there are also a large number of investment firms and individuals with a background in chemicals that are actively looking for acquisitions.

Succeeding at auctions, a common method of divestiture, is a long-shot – The "auction" of a chemical business, which involves the canvassing of a large number of potential buyers on a common timetable is very commonly used as the method to divest an attractive business. The chances of succeeding here are very small. In fact, there are many potential buyers who will not even participate in an auction because they view it as a waste of time and effort.

Privately negotiated deals……….can take a long time to complete – Many buyers seek out deals on a private basis, i.e. they try to acquire a business that is not formally for sale or one that is not being "auctioned." In these situations, the time it can take from start to finish can be much longer than normal, in some cases well over a year.

Privately negotiated deals……….can be very frustrating – In some cases, the process of acquiring a business that is not formally for sale can resemble a long, drawn-out mating ritual. It can take many months and even years to persuade a reluctant owner to sell a business. While the rewards in these types of acquisitions can be quite high, acquirers need to be willing to spend the time and effort in an exercise that very often ends unsuccessfully.

Some companies and firms that are aggressively seeking acquisitions will look at hundreds of deals and make hundreds of contacts with potential sellers for every deal they complete.

Be prepared to look at many deals without buying any. A batting average of well under .100 is not necessarily bad.

Patience and perseverance are critical to success.

The Easy Part – Finding the Money

Although it is hard to find a good deal, getting the financing for one is usually easy. There are hundreds of sources out there looking for good chemical acquisitions to back.

Debt – Many types of debt financing structures are available for acquisitions. There are asset-based loans and cash flow loans. There is senior debt and sub debt. There are many variations on these themes, too numerous to mention. This is not to say that you shouldn’t shop for the best financial package. You should. But when you do, do it with the understanding that there are many lenders and structures to choose from.

Don’t forget considering the seller as a source of financing.

Also remember earnouts or some other form of contingent payment structure as a method of financing a deal.

Equity – For those making acquisitions who need or want to team up with an equity investor, there are also a large number of these types of financial backers eager to participate in chemical deals. These can be established equity forms with existing portfolios of businesses that have been acquired, or possibly high net worth individuals seeking to make an investment in a higher risk, higher yielding business.

THE MARKET FOR GOOD ACQUISITIONS IN THE CHEMICAL INDUSTRY IS CHARACTERIZED BY AN IMBALANCE OF SUPPLY AND DEMAND. THE SUPPLY OF GOOD AQUISITION CANDIDATES IS LOW AND THE DEMAND FOR SUCH DEALS IS HIGH.

THE MARKET FOR FINANCING GOOD AQUISITIONS IN THE CHEMICAL INDUSTRY IS ALSO CHARACTERIZED BY AN IMBALANCE OF SUPPLY AND DEMAND. THE SUPPLY OF MONEY IS HIGH IN RELATION TO THE NUMBER OF DEALS OUT THERE WHERE FINANCING IS NEEDED.