Anatomy of a Deal Seller: ICI Buyer: Croda Business: Uniqema (oleochemicals and surfactants) Sales: ₤626 million EBITDA: ₤49 million Valuation: ₤410 million Multiple of EBITDA: 8.4x Multiple of Sales: .65x Source: ICI

Companies with a plant at excess capacity should ask themselves a more basic question.... Do you really need the plant? There a many a successful chemical company that run wholly or partially with outsourced production.

              EXCESS CAPACITY

Selling a chemical business with an underutilized plant

Chemical production is increasing at a dramatic pace overseas, particularly in China and India. Along with that increase, we are seeing in some cases a comparable decline in production in the US. As a result, a number of U.S. plants are underutilized and with this shift in production offshore, we also are seeing an increasing number of chemical businesses for sale in the U.S. which include a plant or plants running at less than optimal capacity.

For sellers and buyers, is the glass half-full or half-empty? As with so many situations in the world of acquisitions and divestitures in the chemical industry, it depends on how you look at it. In the article that follows, we will discuss this subject in more detail.

Excess capacity can be a serious problem. Lack of sufficient volume running through a plant can have a significant impact on profitability. And in some cases, lack of sufficient volume can make a plant unprofitable. What's a seller to do? Is there s silver lining somewhere? The answer may very well be yes.

• One of the types of logical buyers for a chemical business running with excess capacity is another chemical company that has excess capacity. Synergies can be very large in an acquisition of this kind if production is rationalized into either the seller's or the buyer's plant. And for the seller, significant synergies to the buyer can translate into a higher price, a price higher than the business is worth on a stand-alone basis. Example: In one chemical industry transaction currently being contemplated, the seller's earnings are conservatively projected to increase by over 50% if the buyer makes the acquisition and moves production into its own location.
  
  
• In some cases, a seller's plant may have a high value as real estate completely independent of its value as a chemical business. If a buyer intends to move production into its own plant, the seller can retain its plant and sell it separately. Example: In a transaction involving a seller with a facility in the NY metropolitan area, a buyer bought the business without the plant, leaving the seller with a piece of real estate worth over twice the price received on the divestiture of the chemical business.
  
  
• And reversing this scenario, a buyer having a plant with a high real estate value can move production into the seller's plant after a closing and sell off its existing location.
  

All of these scenarios are win-wins.

Some other observations.....