We are optimistic at ChemQuest that M&A activity will pick up in 2024. Whenever our clients are ready to move forward and explore options, whether on the buy or sell side, our unique structure and extensive specialty chemicals expertise put us in a position to help achieve the best deals possible.
Our success lies in the strength and collaborative nature of our four main business pillars: Business Strategy & Transformation, Operational & Manufacturing Efficiencies, Technology Development, and M&A Advisory. Each pillar is supported by subject matter experts with decades of experience across the specialty chemicals value chain, including Ph.D. chemists, senior technical managers, C-suite executives, and business owners.
Teams in these pillars work synergistically to deliver the highest value to our clients. For example, business strategy projects often uncover M&A opportunities, or our recommended operational improvements help a sell-side client net a higher sale price. In all cases, our experts work hand-in-hand as strategic thought partners with our clients to identify the best path forward for their business, as well as the specific steps they need to take along the way.
Increasing Strategic Activity in 2024
Multiples were down last year, by a couple of turns in some cases, and central banks around the world are trying to fight inflation with high interest rates. Indeed, the weighted average cost of capital went up from 5.5% to closer to 12% in one year. As a result, buyers were having to pay higher interest – which really put a damper on the market.
That said, M&A strategy differs quite a bit depending on the size of the company. Large public and global multinational companies have been making large-scale acquisitions for the past three years. In 2024, they are increasingly looking to realign their portfolios to focus on more strategic assets. They’re putting a microscope to their businesses and deciding what non-strategic elements should be shed. In so doing, they will use that cash to make more strategic acquisitions going forward.
In contrast, small- and medium-sized enterprises (SMEs) had a difficult year in 2023. Looking into 2024, SMEs are waiting out the economy and hoping to start demonstrating growth. For those that will then be in a position to sell, the latter part of 2024 is likely going to be the time when they start to act.
At the same time, a significant amount of money that has been raised for M&A is sitting on the sidelines. Private equity firms raised a lot of cash in 2021 and 2022, for example, and they haven’t been able to put it to use. Combined with positive economic trends, this sets the stage for an active 2024.
Cross-Functional Support
As previously mentioned, ChemQuest’s unique value lies in our multi-pillar collaborative approach. On the sell side, we work with business owners and management to improve their bottom line because we know that every dollar of savings that we bring to them results in a multiplier effect for the enterprise value. Our subject matter experts in manufacturing and operations improve clients’ overall processes, leading to gains in productivity and efficiency that feed directly to the bottom line.
We also work with clients to optimize both the intrinsic and strategic value of their business. Improving their earnings and balance sheet is of course vital, but our team’s deep industry knowledge and connections also enable us to uncover target growth markets, demonstrate the total addressable market, and identify industry trends and customer dynamics. Our subject matter experts in strategy and technology refine clients’ business strategies and fully understand their technologies, technical capabilities, and their pipelines. In so doing, we help clients focus on their ideal attractive markets, as well as the best pipeline for new product development and innovation.
At the same time, we apply the information developed during strategy development to work with investment bankers. We assist in preparing the company marketing materials, such as the confidential information memorandum, and our deep understanding of all the technologies, end markets, operational practices, and so on enables us to identify those buyers that would have the highest degree of synergies with our client. These types of buyers naturally have a higher valuation of the business because they better understand the strategic overlap and the synergies they would be able to capitalize on.
On the buy side, our work begins with refining the client’s business strategy. That information then informs the development of the client’s acquisition strategy, which is essentially designed to plug gaps that they may have in their strategic roadmap. For example, they might be struggling with limitations in expanding their regional focus, the inability to enhance their technology, or issues with their go-to-market strategy.
Once we have an M&A strategy in place, the next step is to develop an investment thesis that identifies the types of attractive candidates and how they would fill the gaps if they were to be acquired. During the deal sourcing process, we capitalize on our deep industry network and connections with CEOs and business owners to pursue those target companies and convince them to come to the table.
ChemQuest’s diverse subject matter experts thrive as key partners in our clients’ M&A teams, working with decision makers and CEOs to advise them on strategy, valuation, potential synergies, market comps, and so much more. We also conduct due diligence on all aspects – from manufacturing and technology to markets and commercial issues – and we shepherd the process all the way to a successful closing.
To learn more, reach out to the author at dmurad@chemquest.com.
Read in Chemistry Today.