ILMA Compoundings June 2018 - 19

12.0x

POTENTIAL STRATEGIC BUYERS
Trading Multiples (EV/EBITDA) of Public Lubricants and Finished
Fluid Companies Since 2010
Low: 5.6x
September 2011

EV/EBITDA Multiple

10.0x

Current: 10.9x

8.0x
Avg. Multiple: 8.6x
6.0x
4.0x
2.0x

INCREASING COMPETITION FROM FINANCIAL BUYERS
It will take no one by surprise to hear that financial buyers
(namely private equity) have become an increasingly dominant
player in lubricants M&A over the past few years. Having already
mentioned Ardian and its investment in Italmatch, there are
three other major private equity players currently engaged in
aggressive roll-ups in this space: Audax Group, Golden Gate
Capital and The Jordan Co. Audax acquired RelaDyne in mid2016, Golden Gate Capital acquired PetroChoice in late 2015
and The Jordan Co. acquired DuBois in early 2017. Collectively,
these three firms have made approximately 16 add-on acquisitions since their original platform acquisitions were made.
Of the three above, the first part of 2018 has been largely
dominated by Audax and RelaDyne, completing three
acquisitions in the first four months of the year, including
Conservancy Oil Group, T.A. Roberts Oil Co. and A&W

Oct '17

Apr '18

Apr '17

Oct '16

Apr '16

Oct '15

Apr '15

Oct '14

Apr '14

Oct '13

Apr '13

Oct '12

Apr '12

Oct '11

Apr '11

Apr '10

In the M&A process, this becomes apparent and part of
the "story" around the normalized current and future earnings of the selling entity. Companies that can show a clear
path to regaining contribution margin (selling price minus
raw material cost) after such raw material cost increases are
often deemed to have a specialty niche and/or be critical
partners to their end customers. These businesses tend to
trade at higher multiples, and they are often viewed as more
focused on selling solutions versus products.
This is not meant to be critical of suppliers of commodity
products, as they serve a key function in the lubricants value
chain. This is simply a reflection of how buyers generally place
a higher valuation multiple on "specialty" companies versus
"commodity" companies.

Oct '10

Specialty Lubricants and Finished Fluids
0.0x

Oil Co. This is a continuation of RelaDyne's stated strategy
of aggressively pursuing geographic expansion through a
roll-up of targeted and complementary businesses.
Creating further potential competition going forward, many
other firms have expressed a very strong interest in developing
new platforms in the lubricants space. Given private equity's
appetite in the lubricants market, strategic buyers are going to
have to show a willingness to move fast, be flexible and pay a
full value to be successful in growing by acquisition.
In conclusion, while market volatility has served as a
wake-up call for many private business owners, there really
isn't a compelling reason for immediate concern. The pieces
remain in place for a robust M&A market, with cash-rich
buyers chasing too few deals - keeping values at a significant premium relative to historical norms. How long this
will last is always uncertain; however, we anticipate this to
continue through the balance of 2018. The next relevant
data point might come from the shakeout of the United
States' midterm elections later this year and the reading
of the tea leaves on how it could impact the industry and
markets going forward. Status quo would likely be a good
thing for deal activity in the lubricants market. Regardless,
the lubricants industry will remain highly fragmented, and
opportunities will continue to exist for consolidators to play
a dominant role in shaping this market going forward.
Scharff is the managing director at Grace Matthews.
He has over 20 years of chemical investment banking
experience and has advised chemical clients on mergers,
acquisitions, business sales, complex business swaps
and technology acquisitions.

19
ILMA Compoundings June 2018

Table of Contents for the Digital Edition of ILMA Compoundings June 2018
