ILMA Compoundings - March 2021 - 19

Small to mid-sized businesses also saw increases in regulatory and operational costs that were difficult to absorb,
Scharff said. Even old-fashioned face-to-face meetings,
where buyers and sellers size each other up and forge the
relationships needed to successfully merge cultures, suffered
during the pandemic.
" Tough decisions have to be made, and if you trust the
person you're transacting with, it's always easier to come to
alignment, " said Scharff.
Lubricant manufacturers proved their essential nature - and
thus, their power to keep operating - during the pandemic,
which removes one possible hurdle for M&A in a post-pandemic world, said Scharff. But the next area of scrutiny is the
supply chain, as buyers ask how acquisition targets managed to
acquire raw materials and maintain dual sourcing.
The pandemic halted Denton's ability to travel in support
of Master Fluid Solutions' October 2019 acquisition of
German-based lubricants producer Wilhelm Dietz GmbH
& Co. KG. But lockdowns and travel bans couldn't be
allowed to sideline the work of integrating the businesses
and acclimating teams to corporate policies in sales and
operations, she said. Virtual communications and information-sharing capabilities were upgraded " very, very quickly. "
The IT department focused first on setting up employees to
work at home and then, when it became clear that pandemic conditions would linger, on keeping large projects
moving forward.
The pandemic-driven economic downturn hasn't caused
the kind of economic distress that prompts opportunistic
companies and equity funds to snap up undervalued firms,
noted Gerhard. Valuation multiples remain high, but lubricant manufacturers are feeling an economic pinch due to
" the Amazon effect, " as skyrocketing deliveries of consumer
goods and carryout food drive up material costs in plastic,
cardboard and steel.

TEMPORARY DISRUPTION, PERMANENT
IMPROVEMENTS

At many companies, pandemic-era survival tactics proved
their usefulness as permanent practices. Remote-work
policies are likely to become more lenient. Virtual meetings
have worked so well that travel requests will face heightened
scrutiny to prove their return on investment.
As people adapted in " amazing " fashion to remote dealings, Chrysan actually increased its strategic alliances in new
product development, marketing agreements and contract
manufacturing agreements, said Gerhard.
" We've been able to improve or expand some of those
strategic partnerships during 2020, which is incredible, " said
Gerhard. " It was not only with people we knew and were
doing business with. We also forged some new relationships,

including with new customers, in cases where everything
was done virtually, without being able to shake hands in
person and meet face to face, " said Gerhard.
The key to embracing new practices is being open-minded
to change, analyzing data and regularly soliciting the views
of employees, partners and customers.
" We'll have to do some reflecting, " said Denton. " Determine what worked really well along with identifying
improvements. My expectation is our business processes will
be more robust going forward. "
On the M&A side, Scharff is " guardedly optimistic " for
2021. Although deals declined early in the pandemic, when
" people pumped the brakes hard, " activity returned in mid2020. Now, private equity has pent-up money to spend,
while industry players had time to look inward, scrutinize
operations and plan for strategic acquisitions that can shore
up weaknesses.
" From the buyers' perspective, all the pressures are still
there, " said Scharff. " By pretty much every account, global
industrial production is projected to be fairly robust and
bounce back, which drives activity. Banks have significant
capital to deploy. "
The selling companies coming to market in 2021 are
largely " self-selecting, " he added. High-performing businesses are seizing the opportunity to spotlight their strengths
during crisis. Those that struggled " are waiting to recover.
Ideally, you want to show solid upward performance, with
a believable story on how you're going to continue to grow
your business. "

RENEWED CONFIDENCE

The pandemic underscored the pivotal role of lubricants,
as states and regions kept the industry on their essentialbusiness lists.
" When other organizations were being forced into shutdown, we recognized our obligation to keep this industry
moving because we're supplying critical materials, not just to
resolve this pandemic, but to keep our economy running, "
said Denton.
Although 2020 will live in infamy as a wearying and
excruciating year, leaders in lubricants feel confident in a
2021 recovery because they endured and even succeeded
during a trial by fire.
" We have a great group of talented people working for
us, focused on continuous improvement regardless of the
pandemic, " Denton said. " Seeing how we reacted during all
of this and being an essential industry, I'm confident in the
business. Now, do I know what 2021 holds and beyond?
No, but I sure hope it's better than 2020. "
McCormick is a Pennsylvania-based freelance writer and a frequent
Compoundings contributor.

ILMA Compoundings - March 2021

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