Anatomy of a Deal Seller: ECKHART GmbH Buyer: ALTANA Chemie Business: metallic effect pigments and inks (whole company) Sales: €302 million (2004) EBITDA: €65 million (2004) Valuation: €630 million (including tax step-up of €70 million) Multiple of EBITDA: 8.6x (excluding tax step-up) Multiple of Sales: 1.9x (excluding tax step-up) Source: Business Wire

....the biggest difference between the big chemical company and the small one is cultural.

Big Chemical Companies and Small Chemical Companies: A Comparison

Chemical Week, Chemical Market Reporter and Chemical & Engineering News recently put out their annual statistical reviews of the major worldwide chemical companies. Chemical Week reports on the "Billion Dollar Club", providing detailed information on 141 companies with revenues over $1 billion. Chemical Market Reporter reports on "The Top 100" global
chemical companies. Chemical & Engineering News reviews the "Global Top 50". In addition to ranking the top chemical companies in the world
by sales, these publications compile additional statistical information such as profit margins, number of employees, total assets, capital
spending and spending on R&D.

The chemical industry includes so many companies that are smaller than the giants that get listed in these reports. In looking at the statistics for the
big chemical companies, a question comes to mind
--- what are the comparable statistics for small chemical companies? Instead of looking at the biggest companies, what if we looked at the smallest ones, the ones under $100 million in sales? Are there significant differences?

In the article that follows, we will discuss this subject in further detail.

Profit Margin (Operating Income ÷ Sales): The median profit margin for the 100+ big companies in the Chemical Week survey was 7.8%. 1st and 3rd quartiles are set forth in the accompanying chart.

How does this compare to the profit margins of the small, under $100 million chemical company? While we do not have a definitive database to work from, it is our opinion that profit margins are slightly higher, on average, in smaller chemical companies. As a general matter, there is a higher concentration of commodity chemical companies among the big chemical companies of the world, whereas the universe of small chemical companies is populated by a relatively higher number of specialty chemical businesses that command higher margins.

Sales per employee (Sales ÷ number of employees): The median sales per employee for the ~80 big companies in the Chemical Week survey was $405,000. 1st and 3rd quartiles are set forth in the accompanying chart.

How does this compare to the small, under $100 million chemical company? Again, we do not have a definitive database to work from, but it is our opinion that the figures are not that different here between the big chemical company and the small. While the large commodity chemical company typically has a higher amount of sales per employee than the small chemical company, the large specialty chemical companies tend to have lower ratios of sales per employees than their smaller specialty chemical company counterparts. Perhaps this is because the small chemical company is leaner when it comes to staffing?

Return on Assets (Operating Income ÷ Total Assets): Using figures from both Chemical Week and Chemical Market Reporter here, we see that the median return on assets for ~65 big chemical companies was 8%. 1st and 3rd quartiles are set forth in the accompanying chart.

Here we believe that there is a decided difference between the big chemical companies and the small ones. Returns in general are significantly higher in small chemical companies. Again working from an admittedly limited sample, we see return on asset figures very often in excess of 20%. It is not unusual even to see figures over 50%.

CapEx as a % of Sales (Capital spending ÷ Sales): Working from a base of ~65 big chemical companies in the Chemical Week report, the median figure here was 4.6%. 1st and 3rd quartiles are set forth in the accompanying chart.

Here also we see a marked difference between the big and the small chemical company. As you would expect, the big chemical companies typically have a higher level of capital spending per dollar of sales than the small chemical company.

Culture: While we do see some significant differences between big and small chemical companies when looking at these financial ratios, it is our feeling that the biggest difference between the big chemical company and the small one is cultural. The small chemical company typically is more nimble, less bureaucratic, leaner, more motivated and entrepreneurial. The big chemical company is typically deeper in talent, more knowledgeable about industry and global trends, willing to take on larger projects and willing to conduct more advanced R&D. Is one better than the other? It's hard to say and it depends on the specifics. Big chemical companies do certain things very well and other things very poorly. The same is true with small chemical companies. The ideal .....combine the best of both worlds.