Market Outlook
The UK SME market for chemical distribution has seen a huge amount of activity in recent years, underpinned by both a strong drive towards consolidation by major trade acquirers and significant private equity investment in the sector for buy and build. Here's what's actually been happening, and why the conditions are worth understanding now.
Supply chain reliability became a boardroom priority after recent years of global disruption, and distributors with strong supplier and customer relationships and geographic reach are in demand as a result. Meanwhile, chemical distribution remains a highly fragmented market. In North America, the five largest distributors control only around 54% of the market, and in Europe it's closer to 32%. This leaves hundreds of independent, owner-managed businesses still on the table in a sticky market, where gaining market share organically has proven difficult.
Most people in the sector will be familiar with the considerable amount of buy-and-build activity pursued by some of the industry's largest companies, such as Brenntag, IMCD, Univar and Azelis. This is a trend echoed across the market, with a huge number of international and national players alike keen to expand their position through targeted M&A. Recognising the same opportunity, private equity has followed suit, with targeted buy and builds from companies such as Gemspring Capital, SK Capital and Waterland Private Equity.
With this backdrop, it has become a true seller's market, with the top companies vying to get the attention of potential strategic targets. Given the significant competitive tension, overall multiples have trended upwards in recent years. While valuation will always be dependent on the specific business, multiples of 6-7x EBITDA and up are not uncommon. This reflects the technical and supplier-relationship element that sets chemical distribution apart from generalist wholesale.
None of this is a signal to rush a decision, and a sales process should always be undertaken at the right time for the business and its shareholding team. But for a well-run chemical distribution business the current backdrop is genuinely favourable, with more capital specifically targeting this size of business, wider buyer competition, and financing conditions making deals easier to close. If you're curious about whether now might be a good time to explore a business sale for your company, we're happy to have a no-pressure conversation.