A key component of the modern world economy, the chemical
industry delivers products and innovations to enhance everyday life.
It is also an industry in transformation where chemical executives and
workers are delivering growth and industry changing advancements while
responding to pressures from investors, regulators, and public opinion.
Discover how leading companies are approaching these challenges
here on the chemical show.
Join Victoria Meyer, president of Progressio Global and
host of the chemical show.
As she speaks with executives across the industry and learns how they are leading
their companies to grow, transform, and push industry boundaries on all frontiers.
Here's your host, Victoria Meyer.
Victoria: Hi, this is Victoria Meyer.
Welcome back to The Chemical Show where chemicals means business.
Today I am speaking with Kevin Yttre, who is the President and Managing
Director at Grace Matthews, which is an investment bank serving companies in
the chemicals and materials value chain.
So we're going to be wrapping up 2024 with a view on M&A markets and activity
for chemicals, and materials companies.
You may recall that Kevin was a guest on episode one of six in June of 2023.
We are going to be linking to that episode.
so you can hear what was going on in markets at that time
versus where we are today.
And I know that Kevin's also going to be referencing Grace Matthews, most
recent newsletter, and I'll include the link to that in show notes.
Cause that has some great insights about, How you might be thinking
about the world of M&A and how, and strategies for M&A success.
So we'll be linking to that.
Kevin, welcome to The Chemical Show.
Kevin: Thank you very much, Victoria.
Grateful to be here.
Victoria: Thank you for joining me once again.
as we get started, can you just give us a brief introduction
to you and to Grace Matthews?
Kevin: Yeah, first, can I just say this in that intro?
I didn't actually go back and listen to the June podcast from 2023,
so I'm a bit nervous right now.
Victoria: I didn't.
How about this?
I did not either, but knowing you, Kevin, I know it's
Kevin: I'm
hoping there's consistency.
I'm hoping there's consistency.
How's that?
Victoria, I have spent my entire professional career in and around
the chemical industry, and first that was in more operating roles and
then transitioning into financial services about 17 years ago.
So I've been doing all M&A work And, material science and
chemicals for that time period.
And we as an organization, everything we do, as you mentioned in the
intro is really in this value chain.
And just to give you some metrics on us, we have 20 people here in Milwaukee,
Wisconsin, and 2024, for example, we were fortunate to have advised on 11
closings, a 12th that had a signed purchase agreement on.
we closed 10, 10 deals.
so feel, very positive momentum going into 2025.
And, most of our work is on the sell side.
And when you look at that, it's a pretty uniform mix of private companies,
corporate carve outs and also working with private equity funds when they're
ready to realize an exit and, and the balance of our work, which is a smaller
portion of our practices on the buy side.
I think you've heard me say this before, but the vast majority of what
we work on are transactions that are below 500 million in enterprise value.
Some people call that lower middle market or middle market, but that's
really where we spend all of our time.
Victoria: Yeah.
And that makes sense.
And when I think about the industry most broadly on a 80 20 basis,
probably 80 percent of the industry is in that, valuation zone.
Kevin: Yep.
I think that's right.
Victoria: Awesome.
So as we're wrapping up the year, what are your observations
or assessments on chemicals and materials M&A activity in 24?
Kevin: Yeah.
I think, so first let me just say this.
I think forward looking, I think there's a lot of optimism going into 2025, just in
terms of M&A activity in the value chain.
if you take a step back for a second, and this is where I was
joking about the 2023 podcast.
I hope this is what I was saying at that time.
But, if you recall me all the dynamics that led to, to supply
chain challenges and issues in the 22, 23 timeframe, 21 timeframe,
you saw a lot of companies have.
Have record years in 2022 and, that destocking element of things started
to seem to hit people in Q4 of 2022.
And depending on where you were in the value chain, it rippled through
all of 2023 and hit different organizations at different times.
And I think what that did, was very much create a situation where.
Forecasting or projecting a business became really challenging.
And we, had instances, and I'm sure you've had people, on your podcast,
Victoria, that would say they have a customer telling us they're
taking four tank wagons this month.
And then they call us the next day and say, it's one.
And they call us the next day and say, actually, we need three.
and I think, it's just like the industry standard in transcactions to talk
in terms of EBITDA multiples, but.
When you think of it this way, and I know we'll talk about valuation of it, but a
buyer is always buying the future, right?
And, when you talk in terms of a multiple, typically when you think of
that, it's you're taking the enterprise value compared to the most recent 12
months of the company's performance.
that 12 months is usually the best indicator of the future.
And that's what started to decouple is if you go back and you look at all,
all kinds of articles that we would have been a part of, or presentations
we gave, it was all about run rate sustainability or sustainability and
preparing, if you're going to go to market to be able to articulate why
your run rate was going to hold.
And I think what's changed in 2024 is you have seen companies, be able to better
predict how they're going to perform.
And that was a challenge in 23.
And I think as a result, you've seen deal activity really pick
up in the back half of this year.
So you look at deal counts and I know you referenced our newsletter, but if you go
look, we have a chart in there that, that shows kind of deal counts, not overall
enterprise value, just number of deals.
And you saw a step back in 23, and really stepped back up in 24.
And a lot of that step up in my view is really linked to that dynamic of
better predictability of earnings.
And it puts that buyer and seller in the safe spot.
and I know, the funny part about that is we'd have people in 23 go, I
bet this means valuations are down.
And we respond going, you like, rationally, you'd think that a lot
of those deals just didn't happen.
And so if companies that performed really well in 2023, the resiliency
that they would have shown, we actually saw values probably higher,
that whole flight to quality concept.
I think the whole like multiples equation that I'm sure we'll talk
about, I think is also improved here, but really I think that's the dynamic.
If you were to say status of today versus, versus 2023.
Victoria: Yeah.
And that makes sense.
Cause from a business value perspective, just on a holistic basic and I'll let you
get into some of that, but, steady state, is always easier to understand, interpret
and apply value to, and easier to buy.
Because you, as a company that is potentially buying another company
or a business, it's easier to know what you're getting, and surprises
don't make anyone happy usually.
Kevin: Yeah.
We, have a saying in our office that surprises are only fun on your birthday.
So you don't, you don't want that in an M&A discussion.
But no, I think you're exactly right.
Having the ability to predict more of a steady state performance is,
really key to success in a deal.
Victoria: Yeah.
Awesome.
So let's talk about valuation.
Yeah.
What are the current, where are we at?
How about that?
I'll just leave that more broadly is what's the current status evaluations?
Because to your point everybody wants to know, you know How do I value my business?
What markers can I use?
What are you seeing in the world evaluations today?
Kevin: Yeah, and so first and I know I've said this to you privately before,
we get really sensitive using multiples because they're so easy to manipulate.
And you really got to get very granular and specific to a particular company
situation to really assess that.
But I think, and this is in our newsletter as well, if you look at, yeah.
We track an index of 100 public, materials and chemicals companies, and
it's a very diverse mix of companies.
This is like Ecolab and Dow and Sherwin Williams and PPG.
it's very, diverse and you look at, where their public trading multiple
is over a 10 year time period.
That is, is right around 11.3 times.
So over the past 10 years, this index has been, has traded at 11.3 times, which
basically means you can buy that index.
If you could sell it tomorrow, right now in December of 2024.
The average for that index is almost identical to the 10 year average.
And so in, in my view, I would take that to read a, that means it's a
pretty healthy market right now.
And, I think that's where some of that optimism is that I was talking about
is, I don't think people always want to believe they can time the market
and go, should I sell when multiples are really high or when they're like,
I don't think that's clearly possible, but I think it's a pretty healthy time.
Now, I think.
The, real area of how you drive higher multiples for a company.
And this is in that category.
If, you rewind the clock to almost a year ago today, I think you would
have heard people say, I can't wait until 2023 is over and 2024
is going to be so much better.
And.
I think 24 was probably okay for a lot of companies.
More predictable, but just okay.
And I think everyone wanted to believe it was going to be a really good
year and I think it was just okay.
People are saying the same things right now about 2025, and
it's probably a little bit more believable than it was a year ago.
And, I think the key to really having that valuation driver
be there is volume growth.
That's an area where, you know, again, I think go back to all that supply
chain stuff and margins moving all over the place, we've definitely seen.
Very well run companies do very well from a profitability standpoint.
And that, that, in my view, should command value alone.
But showing the ability to organically grow volumes has been a little bit
hard in the past 18 months, two years.
And showing that is really, in my view, where you're going to
start seeing values move back up.
So healthy market, I think really to command a bit more of a premium,
it's getting volume growth going.
Victoria: Yeah.
And that's a good perspective.
And I think you're right.
People would say 2024 was Okay.
depending on where you sit in the market.
second half was not as good as people would have wanted it to be, but it all,
it's very market specific and use market specific and geography specific, right?
which probably is of no surprise to you.
Kevin: Yep.
No, I think that's right.
I think that's right.
Victoria: Yeah.
Awesome.
And so when we think about, Maybe just the competitive landscape.
Are you seeing more or less activity, whether it be from private equity, we
talked prior to the call about, private equity, there had been quite a discussion
about having a lot of dry powder, right?
Is that the phrase?
and capital ready to deploy.
Are you still seeing that?
Is there a lot of capital to deploy?
Does that generate more activity?
How does that translate?
Yeah.
Kevin: Yeah, I saw.
let me maybe just say a few things and if I can start with just this time of year.
So if you think December and January, it's not uncommon that we will have phone
calls with different organizations just to kind Hey, how's the year going for you?
And what are you looking at?
How's your M&A priorities?
And the same in January when you start a new year, it's, hey, let's talk
about what your goals are for the year.
And so this isn't a private equity centric comment.
It's more a, in 2024, we had, I think it's six or seven
international companies come, to us.
And instead of just give us an update on this is where we want to deploy
resources from an M&A standpoint, literally walk us through almost
like a two hour presentation of, Here is our whole M&A strategy.
And we're very keen on building a stronger presence in North America.
And some even came to Milwaukee to visit us and walk through
Victoria: Wow.
Kevin: And so when that competitive landscape question you ask, I go, I
think you can read economists suggest that there's a lot of desire to
deploy resources in North America.
I feel like we're feeling that a bit.
So I, think you do have a little bit more of an international poll
to try and deploy resources here.
So that is one element of a competitive dynamic of, I just think there's more
buyers in that bucket, I think from private equity, we have a chart that
we used in a presentation that shows the number of equity funds has more
than doubled in the past 10 years.
And that's just, a generic, the number of funds have doubled in the past 10 years.
I think those interested in the chemical industry have probably tripled
or quadrupled in the past 10 years.
And that doesn't necessarily mean heavy reactive chemistries.
It may be things like service oriented water treatment or distribution
type businesses, or things like food ingredients or flavor that there's no,
Victoria: Yeah.
Why,
Kevin: And
Victoria: do you think that is?
Why is there a bigger interest potentially
in chemicals?
Kevin: I think it's a really good question.
And I think there's probably multiple answers to it.
One of those, I think, is truly because people have seen other
funds have success in the sector.
and, there's a lot of smart people that work in private equity.
And when you see someone have success Deploying resources and building, building
a business and a successful exit with it.
I think you get people who follow suit and I think that
is, really driving some of it.
And, and I think, over time, I think it used to be really hard a long time ago to
get your head around and, Environmental dynamics, union exposure, commodity
risk, and I think you've just gotten people who have gotten far, better on
how to manage that in a transaction.
And so that just, again, has led to successful investments, which other
people see and they try to replicate.
But truly though, if you go back to your original question, Victoria, you're
seeing a lot more activity from private equity interest in the space and that
does not mean a hundred percent of their resources are going to be invested here.
It's probably a portion of their capital.
And I think some estimates right now are maybe 100 or 150 businesses
are owned by private equity funds.
And a lot of those have buy and build strategies with them.
So I think that competitive landscape question of you have international buyers
who have an interest here, you're seeing more and more private equity funds who
have an interest to invest capital.
You see The platform portfolio companies try and buy and build.
That's not even talking about like the traditional strategic.
And so I think it is a far more competitive environment
than you've seen in the past.
You would intuitively you think, that should make it a little
bit easier to sell a company.
I don't necessarily think that is accurate as well.
I think buyers clearly recognize how competitive it is.
and I think if they don't have a strong angle, they don't lean in hard.
And so I think we have seen on deals that we've worked on where 10 years ago we
might have gotten 30 bids for a company.
The number of bids come down, but the quality of those
bids, I think, tends to go up.
Victoria: Yeah.
So I want to come back on that point.
But the point that strikes me is that if there are more companies interested
in doing deals in North America.
That to me says the price, the prices would go up.
Is that a fair assessment to you?
And yet your multiples you're saying are comparable to where
they were from a 10 year average.
So that doesn't necessarily jive for me.
Kevin: yeah.
I think, again, that multiples over a 10 year period is pretty diversified.
So you're including a whole mix of different commodity companies
and highly formulated things.
And so I, I think that index to me is more just.
The health of where things are let alone like a specific multiple I think if you
do look over time You will definitely see multiples just moving up and that whole
asset inflation dynamic that's happened in every type of industry It has definitely
shown itself But I think if you go look in and again, I don't want to continue
to plug our newsletter But if you go look at the deal counts that I was talking
about before, it's not like there's that many more deals that are happening.
So 2024 there, it was a very good year in the number of deals.
It's about the same as what it was in 2021.
And what everyone thinks was a crazy M&A environment, which was
about the same as, 2018 and 2019.
So there's really not that many more deals and there's more and
more people who are interested.
So I think it does create a dynamic of it's probably a
healthier valuation environment.
But again, I, think, go back to my statement about the, It doesn't
necessarily mean that it's easier to get through a deal, right?
And I know some of the questions you wanted to go through are what
advice you're giving clients today.
every year since I have been doing this and I wouldn't say it's like a magical
January one thing, like diligence, scrutiny just seems to get harder
and harder and harder and so I think we're a broken record all the time of
you need to be prepared, you need to be prepared, you need to be prepared.
I think take how competitive that is.
If someone does get pushed to the edge of what they can pay for something
to be successful in a competitive M&A process, they don't want to be exposed
to any risks they don't know about.
And that just leads to incredible diligence scrutiny.
And that is, again, I don't think it's ever going the other direction.
I think diligence is going to continue to ramp up and, it's crippling at
Victoria: times.
Yeah, well, and I think it's a function of where we are from a
risk and sophistication perspective,
right?
So I, look at it even from my experience working at Shell and clearance and stuff.
And I remember at one point having conversations of, when we started
up some of these plants that were brand new in the, 60s, 70s, 80s,
we were comfortable with learning.
and yet today in a more sophisticated Environment you want to start up and
you want to start up and have 95 percent operating rates and know exactly what
you're doing So I think these parallels
Kevin: And that's never going to happen, by the way,
Victoria: that's never gonna happen.
No, But
Kevin: it's what you want.
Victoria: yeah, they translate everywhere though.
Everybody's a little bit more sophisticated.
They want more certainty and that certainty leads to more diligence.
So you started talking about the fact that there's actually fewer bids per
deal, which maybe is contrary to the idea that there's a lot more people
looking to, to enter the market to make deals in the North America.
and yet it probably balances with these diligence requirements.
Can you touch on that?
Kevin: Yeah, I don't think the fewer is more the again, I'm going to use
our terms and this is internal data.
So I'm sure you could talk to someone else and they give you a different perspective
and they go, No, we're getting more bids.
I just think it felt like 10 years ago, if we were going to market with a
company, you receive a fair number of bids that were, I'm going to put in the
category of kick the tires type of thing.
And let's see if we throw something out there and we'll stick.
I just think buyers are smart enough now to go.
It is that competitive of an environment that trying to do
that is not a good use of time.
And I think really it comes down to, do I have an angle?
Do I really believe I'm the best owner of this company?
And if I am, I'm going to lean in.
I wouldn't quantify exactly how many are in the fewer.
I just think you're starting to see dynamics where, at least on our
projects, where when we do receive bids, they're, one more thought out.
Victoria: and then does that imply that these are, these buyers tend to be far
more strategic versus I, I guess I, my naive view of the world says, I think
of PE perhaps as being less strategic, although I know that they would argue that
they're very strategic and I, get all that versus somebody that says, Oh no, I want
to go and get that asset because it's a perfect fit for the rest of my portfolio.
How do you see that playing?
Kevin: I think, so let me just say this.
You had a question before about, What is the cash on the sideline?
Or what are the war chests at Brendan?
I think you can see some estimates.
That's like a trillion dollars, and it's very hard to categorize a trillion
dollars in one simple statement.
What I would say is this, that when you think of a private equity fund
who's interested in deploying capital in And material science or chemicals.
Typically, they have been evaluating opportunities and interacting with
executives and consultants for years.
And so a lot of times when they see an opportunity, when you hear someone
say, they are strategic in a sense, I think they can look at things and go,
I've seen this, and this, and I could see an ability to put this together
with that company, or I see that they have a hole and need to have an
operation in this part of the country.
And I think, I just think that type of mindset is, it's not just as simple as I
look at EBITDA and I put a multiple on it.
I think when I say they, they really, you're going to see a mindset that's more
of, do we have an angle where we think we can add value beyond just, Just, dollars.
I think that is what is changing.
Victoria: Yeah.
Kevin: and so I would not, take it as a it's more strategic in nature.
I'd say it's it continues to be mixed.
Victoria: Okay.
Fair enough.
So then, what do you
I guess maybe what are the factors that you see in critical?
when we're talking about M&A for, let's just take it 2025 and going forward,
Kevin: Yeah, yeah,
Victoria: can only go so
Kevin: Yeah, I was gonna say, I can't go past Q1 of 25.
So I'm going any further than that would hurt.
But I feel like the number of one once in a lifetime events that have happened over
the past four or five years is pretty, pretty hard to get your head around.
from COVID to Texas freezes to hurricanes to wars.
it's, really hard to envision a scenario where you go like every six months,
we're going to have to deal with an industry dynamic that, that gets,
that causes things to get flipped on
Victoria: And by the way, we've got a potential port strike coming
up in mid January as well, right?
Again, another rare occurrence that doesn't feel so rare anymore.
Kevin: And that's the stuff.
So I always go to the what can you control?
And when we ever sit down and talk to a seller, we always take a step
back and go, how is the market and how is your business doing?
and I think what hopefully I just mentioned for the last whatever 10
minutes is, the market seems to be in a spot where it's pretty, pretty solid.
And there's optimism there.
I think the critical factors then really come down to drilling and
specifics on your own business and where the business is at.
And that to me is really the Key of does your business where it sits today?
Dynamics going on within it get you to a spot where you would be happy with
the transaction if you're a seller.
And if the answer to that is yes, I think you have again a good market
and a good, company situation.
If you don't have both of those in the equation, I think it's a hard
thing to look someone in the face and tell them that it's a good
idea to entertain going to market.
And I say that from a sense, Victoria, and this is where I go
back to the, I'm worried about what I said in the 2023 podcast is
Victoria: I'm sure you're consistent,
Kevin: good.
Victoria: I probably
Kevin: know,
but I do think there, in that timeframe, we were giving a fair number of people
guidance of if you don't need to go to market, or if there is not some
factor that is, forcing you to sell a company right now, you're better
suited to just hold off and let some of this stuff play itself out.
At that time, I'm sure we would have.
Put some comment out there that goes the first question about your
company when you go to market it.
You don't want it to be Why are you doing this right now?
And so so I think that Again, it's not really a critical thing I think
it's more the you need to dig into specifics within a business and if
they support You're going to get to an outcome that you feel is appropriate.
it's a good time
Victoria: Yeah, absolutely.
And I think there's a lot of uncertainties, in the market still, right?
So the chemical industry seems to be a bit more steady state.
That is true.
we know that there's a lot of strategic actions taking place with some of
the biggies that have announced, some strategic changes in, their
European portfolios in particular, and then how it plays out globally.
We've got the new administration coming in, in January, which is going to.
It's already, introducing some different variables into the equation.
It's going to continue to do particularly, probably for at
least for the first six months of the year, I would assume.
and so would you offer the same advice of, think twice before you
decide you're going to sell or just at least know what your story is?
Kevin: yeah, I don't think it's like the again, I So let me
just maybe share this insight.
It's not uncommon when we are brought in to talk to a private company, a
more of a private, privately held business, whether that's a family, a
few shareholders, but truly private.
A lot of time before, before I asked for guidance, it usually starts
with, what do you think we should do?
Which is very different than I'm ready to sell my company.
Tell me how to do it.
And, I think the, what do you think we should do has some elements
in it of, is now a good time.
And when you look at our business, are there some things that we
should address before we entertain going to market with the company?
and that goes back to my comment a few seconds ago.
I think if you look at where optimism is at, and you look at that current market
fundamentals, I think those things support there is, An active buyer pool out there.
you really need to drill into specifics on a company to go is should you
wait six months or three months?
Some of that comes back to candidly, the volume thing is that I was talking
about before of showing a little bit more traction on volume growth.
If 25 ends up being a better year, I think unlocks so much more value for someone.
and so I think those are the types of things of what opportunities
are staring you in the face and how near term are they?
But I will also take a step back and all of a sudden you can never thread
a needle perfectly on these things.
So thinking you can do that is going to just lead to a poor outcome.
I think you can always then find a reason to go.
i'll just wait six more months.
I'll just wait six more months
Victoria: Yeah.
in, in what I think has been interesting in, I've worked with a number of
private companies, and work with different leaders in different places.
And there's a different lens often in terms of how they make decisions, right?
They make a decision that they, it's probably a longer term view also often,
and they make a decision, they figure out how to make it work and they just,
you Do it because they're not beholden to shareholders every quarter in the
same way that a public company is so I think that does drive some different,
decision making and timing because the lens of judgment is different
Kevin: I think that's right
Victoria: So kevin, let's let's turn a little bit to leadership.
because I like to always ask this question of folks What advice do you have for
somebody who's early or mid career?
that would like to keep Get into investment banking and deal making and
do a little bit of what you're doing.
Yeah.
Kevin: career,
but, at some point in time, you are, you're seems like you're
like, I'm the old person.
Now I'm supposed to have some advice to give people.
anyways, I think getting into investment banking, I think that is so much
easier to do early in your career.
It's tricky to do when you're further along in your career.
And I think that is really just comes down to the basics of deal execution
and understanding all of that.
having a foundation when you're younger is really, much, easier to do.
I think what has changed is there is so much of a fight for talent these days
that it used to be like to become an associate in an investment bank, you need
to have an MBA and do all these things.
I think that has changed and I can't speak to how large bulge bracket
banks do all their recruiting stuff, but I think the rules have very much
changed over the past several years.
And so I go to the if you want to get an investment banking starting early
in your careers is a bit easier to do.
I think if you want to be in deal making and you want to be maybe not
on the advisory side, but active within an operating company, for
instance, I think it's trying to find a way to navigate in this.
We get this question quite frequently from different professionals where
they go, I was, I work in this company.
I'm a marketing manager for insert the blank, and I was pulled in on
diligence for a deal that we are working on, and I'd really like to know
how I could get more active and deal.
So I think trying to get into your corporate development group is really
another path to, get into deal making.
The challenge there can be some companies have a corporate development
group and they don't do a lot of M&A.
And so you'll find some frustration to go I'm in this group.
We evaluate our opportunities and we just don't do a lot.
I think if you're really wanting to be in dealmaking, you got to find
yourself in an organization that views M&A as a core pillar as part of
their strategy, and then, you're in a spot where you will be, a bit more
active in terms of true dealmaking.
Victoria: Yeah,
So in, so you have an MBA, as I recall, am I right?
and that's actually the pivot point for you.
Kevin: that was Correct.
Victoria: Yeah.
So, do you still see it as a viable pivot point for
people coming out of maybe what's considered operating roles and then
moving into investment banking?
Is that still legit?
Kevin: I think that is still very much the case I think if you do recall Victoria,
like I still even had a backdoor way into this I wasn't intending to get
into financial services I met our two co founders and more wanted to meet their
clients that I did want to work and transactional work I think that still was
very much a common path investment banking is going to business school and using
that as a launching pad to make a change
Victoria: Awesome.
Kevin, thank you.
Thanks for taking time to talk with us today.
I really appreciate your insights.
Kevin: Yeah, thank you.
Victoria.
It's good to see you
Victoria: Absolutely.
And thank you everyone for joining us.
Keep listening, keep following, keep sharing, and we will
talk with you again soon.