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Squire Patton Boggs

Feature Article - Quietly weathering the storm

Carolyn Buller of Squire Patton Boggs takes a look back at a year like no other in chemicals

Squire Patton Boggs (SPB), a global law firm, has about one third of the top 60 chemical companies as clients and is constantly speaking with the industry about ongoing trends. The COVID-19 pandemic has made forecasting an even more treacherous business than ever and it is always hard to generalise over so broad a concept as speciality chemicals. ‘Specialities’ are a never-ending game – everything is or was a speciality until, one day, it no longer is.

That said, we have still been able to discern some trends in the industry. In late 2019, everyone in basic chemicals and commodities, almost without exception, was down. Although specialities were strong at the time, we believed commodity performance might be the proverbial ‘canary in the coalmine’, because historically weakness in commodities has tended to presage a downturn in specialities.

In fact, 2020 was surprisingly strong for specialities, even as commodities were struggling. At the start of the pandemic, chemical companies generally believed that things were going to get really tough and they prepared for that. They cut costs, 'stuck to their knitting' and took only carefully chosen risks in their general and M&A activity.

By and large, the bottom did not fall out of the specialties market and customers did not disappear as had been expected largely because end markets for chemicals are exceedingly broad.  While markets relating to airlines, restaurants and hotels were likely to suffer, many other end markets were unaffected or even exceeded prior year’s demand. End markets relating to home improvements are an example of that last category. And, recently, we have seen good Q4 results in both commodities and specialities, a sign of the resilience of the broader industry.

SPB was involved in two key deals in speciality chemicals last year. One of them, Ashland’s acquisition of Schulke & Mayr in Germany, expected to close by June. The transaction was a good example of the general trend: companies are looking to buy strong, mid-market players in sectors familiar to them, generally in the $200-500 million bracket.   In this case, Ashland reinforced its position as a premier speciality additives supplier and strengthened its consumer business portfolio.

On the sell side, we represented Momentive Performance Materials in the sale of its consumer adhesives business to Henkel, a move designed to allow Momentive to focus on more advanced technologies.  This is another recurring theme in specialty chemicals. T

here have been relatively few mega-deals in the past year - PPG’s acquisition of Tikkurila and Lonza’s more recent agreement to sell Lonza Specialty Ingredients to a consortium of private equity firm are the exceptions. This trend is likely to continue for the next few months until we have more clarity on vaccine distribution and effectiveness.

China remains the big question mark. When I talk to chemical companies, engagement with China looms large in their planning. European companies have been ahead of the US in engaging in deals with China. With a less confrontational administration now in place in the US, this gap may close.

In the past year, we were not busy in the chemicals sector in China. I do not expect a huge amount of change this coming year, particularly in specialities, where protection of trade secrets is so important. The chemical moves there are more in basics and petrochemicals, where the technology is generally older.

It is interesting to note that in the past few weeks, China implemented legislation similar to CFIUS in the US and similar laws in the EU designed to oversee certain industries and block acquisitions to protect sensitive information. The new law lists several industries that will be considered for this additional review. Chemicals are not listed.

However, in a way that is not unusual in Chinese legislation, there is a catch-all at the end of the legislation that any other industries deemed important enough could be added in. So it is not impossible that such government review would be applicable to chemical operations in some cases.

In terms of key trends in specialities for the year ahead and beyond, there are some breakthrough technologies with potential in multiple end uses to look out for. We are hearing a lot about ‘green oxygen’ as a game-changer, notably in cosmetics and personal care, a sector that has defied gravity for many years.

We also continue to hear a lot about sustainability, another major trend and one that is now affecting all chemical companies up and down the chain. Speciality chemicals have come under the same pressure from consumers as basic chemicals and are being asked to show that their products will have very limited impact on the seas, soil and human health.

Companies, both in the US and Europe – which remains well ahead of the US on greenhouse gas regulations – are increasingly thinking about how to discharge their responsibilities for these gases, by offsetting. It is clear that the Biden administration is going to be a lot more committed on that front. There is also huge pressure from the customer base to act on plastic waste, both by recycling in all forms and biodegradability.



Andrew Gregory

Media & Communications Manager

Squire Patton Boggs (UK)

+44 207 655 1257

[email protected]

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