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Specialty Chemicals and Materials Insight January 2012
Page 2 of 6
Renewable Chemicals Capital-Raising Activity Renewable chemical companies, like developing technology and bio-pharma companies before them, have followed a well-travelled path of raising private capital slightly in advance of completing a public offering. Approaching the public markets with a strong balance sheet and prominent backers enhances bargaining power when companies are seeking an enhanced public valuation.
2009-11 Private Placement Deals for Renewable Chemicals Companies (ahead of completed or planned IPO)
Map of recent prominent renewable chemicals sector deals illustrates announcement timing of the last private placement before IPO, in relation to the IPO filing date.
Public Renewable Chemicals Market Performance Renewable chemical companies that have recently come through the IPO window include Codexis (Offer Date: 4/21/10), Amyris (9/27/10), Gevo (2/8/11). Solazyme (3/11/11), and KiOR (6/23/11). In addition to the challenge of measuring up to investor expectations for development milestones and growth, these companies dealt in 2011 with equity market deterioration, and the tag of being part of the slow-developing bio-fuels markets. Long-term, we would expect companies like Elevance, LS9, GlycosBio, OPXBio, and Cobalt Technologies, focused on developing drop-in substitutes for high-value chemicals, to outperform these early arrivals that have been more highly focused on lower-margin fuels markets.
Public Renewable Chemicals Relative Market Performance Since IPO through December 30, 2011
Source: Capital IQ.
Amyris $133
Codexis $52
Gevo $33
KiOR $110
Solazyme $60
Ceres $17
Genomatica $150
Myriant $60
Mascoma $50Elevance $50
Coskata $40
BioAmber $45
-9Q -8Q -7Q -6Q -5Q -4Q -3Q -2Q -1Q Q 1Q 2Q
IPO Filing Date
Quarters from Initial IPO Filing
Transaction Value ($ in Million)
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Apr-10 Oct-10 Apr-11 Oct-11
CDXS AMRS GEVO SZYM KIOR
(42.5%)
(61.7%)(60.0%)
(30.1%)(32.1%)
Public Companies
Specialty Chemicals and Materials Insight January 2012
Page 3 of 6
Clean-Tech Growth: Enabled by Specialty Chemicals and Materials The third quarter of 2011 witnessed the announcement of two marquis M&A deals that highlight the convergence of Clean-Tech, specialty chemicals, and advanced materials.
Ecolab – Nalco
The announcement in July of the merger of Nalco Holding Company (NYSE:NLC) (“Nalco) and Ecolab Inc. (NYSE:ECL) (“Ecolab”), valued at over $8 billion, marks a new peak in specialty chemicals M&A activity focused on growth in Clean-Tech.
The purchase price was a 34% premium to Nalco’s closing stock price on July 19, the last trading day prior to the announcement of the agreement. Ecolab’s Chairman Doug Baker cited Nalco’s “great expertise in water management and sustainability solutions,” his sense that “agriculture and food safety and water are interlinked” and Nalco’s strong position serving the oil and gas industry as motivations to create through this merger the “global leader in water.” Nalco’s Chairman Eric Fyrwald added that “megatrends around water, energy, food and emerging markets are very strongly behind us, and together, our capabilities allow us to fully take advantage of those tailwinds.”
OM Group – Vacuumschmelze
On July 3, OM Group Inc. (NYSE:OMG) announced the acquisition of Vacuumschmelze Gmbh & Co. KG, a privately-held manufacturer of magnetic materials and components. OM Group pointed to Vacuumshmelze’s “market leadership in solar inverter technology and positioning to grow with wind energy output” as key drivers in their interest. With this acquisition, OM Group furthers its transformation from a manufacturer of cobalt and nickel-based specialty chemicals to a diversified maker of battery technologies, advanced materials, magnetic components and specialty chemicals, serving high-growth verticals.
Metric Ecolab-Nalco Deal Terms OM Group –Vacuumshmelze Deal Terms
Target Value $8.1 billion $1.0 billion
EV/Revenue 1.8x 1.8x
EV/EBITDA 10.9x 2011 EBITDA 8.6x 2011 EBITDA
Combined Revenue $11 billion $1.9 billion
Combined EBITDA $2 billion $425 million
Sources: Company Presentations, First Analysis
Clean-Tech Driven M&A in Materials: Recent History
In the last 10 years, Clean-Tech has been a powerful driving force behind dozens of M&A deals in specialty chemicals and materials. Beginning with the divestment of BetzDearborn from Hercules to GE in 2002, the following table highlights deals with values greater than $100 million in which Clean-Tech’s high-growth profile and global expansion opportunities were key to the transaction. Note the examples of several companies (Nalco, PQ Corporation, and BWA Water Additives) that changed hands more than once, with increasing multiples in each transaction. Multiples have been generally strong compared to typical materials-industry norms, with a median Value/EBITDA of 8.9x.
Specialty Chemicals and Materials Insight January 2012
Page 4 of 6
Announced Date
Target Clean-Tech Products
Transaction Value
Value/ Revenue
Value/ EBITDA
Acquirer
($ in millions)
06/21/2011 BWA Water Additives Water treatment chemicals 300 2.1x Berwind
02/16/2011 Süd Chemie Catalysts 2,496 1.5x 12.4x Clariant
01/10/2011 Elkem AS Solar grade silicon metals 2,000 1.2x 21.5x China National Bluestar Co.
02/28/2010 Etimex Solar GmbH Encapsulation films for
solar photovoltaic modules 324 4.8x 9.5x Solutia
12/23/2009 EaglePicher
Technologies, LLC Spcl batteries for military
and commercial apps. 172 1.4x 11x OM Group
09/29/2008 BWA Water Additives Water treatment chemicals 200 1.6x Seera Investment
Bank
02/04/2008 Ecovation, Inc. Wastewater treatment and
renewable energy solutions
210 4.2x Ecolab
12/10/2007 Argillon GmbH Catalysts 315 1.3x 8.2x Johnson Matthey
05/31/2007 PQ Corporation Perf materials for catalysts
and water treatment 2,195 3.0x 14.8x The Carlyle Group
05/24/2007 ChemTreat, Inc. Water treatment products
and services 435 2.2x Danaher
04/17/2007 Norit NV Water treatment chemicals 600 1.6x Doughty Hanson
07/16/2006 Cytec Industries Inc.,
Water Treatment Chem. Water treatment chemicals 240 0.8x Kemira
01/09/2006 Engelhard Catalysts 5,727 1.1x 11.6x BASF
09/30/2005 UOP LLC Catalysts 825 1.3x 6.1x Honeywell
02/08/2005 Elkem AS Solar grade silicon metals 935 0.8x 6.4x Orkla
12/17/2004 PQ Corporation Perf materials for
catalysts/water treatment 753 1.4x 8.9x
J.P. Morgan Partners
04/19/2004 Akzo Nobel Catalysts Catalysts 740 1.3x 8.9x Albemarle
08/31/2003 Nalco Inc. Water treatment chemicals 4,350 1.6x 7.8x Apollo; Goldman
Sachs; Blackstone
06/03/2003 OM Group Inc.,
Precious Metals Bus. Catalysts 752 0.5x 7.2x Umicore
09/23/2002 Synetix Catalysts 405 1.8x 8.7x Johnson Matthey
02/12/2002 BetzDearborn, Inc. Water treatment chemicals 1,800 1.8x 8.3x General Electric
Median Multiples 1.5x 8.9x
Sources: Capital IQ, Company Filings and Reports, First Analysis
Specialty Chemicals and Materials Insight January 2012
Page 5 of 6
Industry Stock Market Performance Measured from the cyclical bottom in March 2009, stocks within the First Analysis Specialty Chemical/Clean-Tech Leaders Index (specialty chemicals companies that have strong Clean-Tech product lines) have far outperformed Clean-Tech growth stocks and the broader market. During 2011, Specialty Chemicals Leaders lost ground to the broader market, but still outperformed Clean-Tech Growth stocks.
March 1, 2009 to December 30, 2011 Performance 2011 Indexed Performance
Source: Capital IQ December 30, 2011 Specialty Chemicals Clean-Tech Leaders Index includes: ROC, FMC, OMG, ALB, PX, APD, CCC, ASH, ECL, and FOE. Clean-Tech Index Growth Leaders Index includes: AMRC, VNP, RBCN, MBTN, FSLR, WPT, S92, GTAT, R8R, SPWR.A, 658, 916, RCM, CREE, GLV.A, 5857, WFI, AEIS, and ENS.
Current Public Market Trading Multiples Specialty Chemicals Clean-Tech Leaders
2011E EBITDA Multiples Comments
At year end, specialty chemicals clean-tech leaders were valued at an average of 8.5x EBITDA. By comparison, the same valuation metric measured across First Analysis’ broader specialty chemicals index was 6.2x. In this list, there is some lift from large market capitalization (ECL, PX, APD) and discount applied due to concerns about the European economy (ROC).
2011E EBITDA Margin 19.9% 30.8% 16.9% 25.2% 22.8% 12.7% 24.4% 23.1% 15.9% 9.5%
2011E Revenue Growth 11.8% 11.6% 13.1% 10.4% 7.7% (22.7%) 21.3% 16.9% 28.3% 3.5%
Source: Capital IQ. Data as of December 30, 2011.
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11
Specialty Chemicals Clean-Tech Leaders
Clean-Tech Index Growth Leaders
S&P 500
NASDAQ
-50%
-30%
-10%
10%
30%
50%
Jan-11 Apr-11 Jul-11 Oct-11
Specialty Chemicals Clean-Tech Leaders
Clean-Tech Index Growth Leaders
S&P 500
NASDAQ
13.4x
11.1x
9.9x
8.6x 8.6x 8.5x
7.2x
5.5x 4.5x
3.8x
ECL PX CCC APD FMC ASH ALB ROC OMG FOE
96.9%
151.0%
249.6%
79.5% (22.8%)
(3.2%)(1.1%)
(8.2%)
Median Metrics
EV / 2011E EBITDA 8.5x 2011E EBITDA Margin: 21.3%
Specialty Chemicals and Materials Insight January 2012
Page 6 of 6
About First Analysis Investment Banking
Founded in 1981, First Analysis has a 30 year track record of serving emerging growth companies and established industry leaders within its focused areas of domain expertise. Our investment banking practice leverages industry insights
developed through our equity research and private equity activities to deliver value to clients across the life cycle of a business.
Providing senior level attention to every client, First Analysis offers superior execution across a comprehensive range of investment banking services, including
M&A advisory, public equity and debt financing, and private equity placements.
First Analysis Securities Corporation One South Wacker Drive, Suite 3900
Chicago, IL 60606
www.firstanalysis.com
Eric Terhorst
Senior Vice President
(312) 451-2155
Matt Nicklin
Managing Director
(312) 258-7181
Brian Friedman
Managing Director
(312) 258-7110
This report has been prepared by the Investment Banking Department of First Analysis Securities Corporation. This report is an overview and analysis of trends and is not intended to provide investment recommendations on any specific industry or company. This is not a complete analysis of every material fact regarding any company, industry, or security. The opinions expressed herein reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Past performance and any projections herein should not be taken as an indication or guarantee of future performance. This report may contain information which was previously included in a First Analysis Research Report. A complete listing of all companies covered by First Analysis Equity Research and applicable research disclosures can be obtained by calling 1-312-258-1400 or writing to: First Analysis Securities Corporation, Equity Research, One South Wacker Drive, Suite 3900, Chicago, IL 60606. First Analysis Securities Corporation is a registered broker/dealer with FINRA and member SIPC.
