Chemicals Update | Summer 2018

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CHEMICALS UPDATE Summer 2018 Introduction

Dear Clients and Friends, Houlihan Lokey is pleased to present its Chemicals industry update for summer 2018. We have included relevant news stories, recent M&A transaction announcements, a public markets overview, and other industry insights to help you stay ahead in this evolving industry. We hope you find this quarterly update to be informative and that it serves as a valuable resource to you in staying abreast of the market. If there is additional content you would find useful for future updates, please don’t hesitate to call or email us with your suggestions. We look forward to staying in touch with you. Regards,

Chemicals Group Contacts Financial Advisory Services

Mike Giffin Christopher Glad Blythe Berka Managing Director Director Financial Analyst [email protected] [email protected] [email protected] 214.220.8485 312.456.4730 312.995.7768

Corporate Finance

Leland Harrs James Holmes Harrison Davis Head of Chemicals Senior Vice President Associate [email protected] [email protected] [email protected] 212.497.7842 212.497.4268 646.259.7438

2 Houlihan Lokey is the trusted advisor to more top decision- makers than any other independent global investment bank.

Corporate Finance Financial Restructuring Financial Advisory

2017 M&A Advisory Rankings 2017 Global Distressed Debt & Bankruptcy 1997 to 2017 Global M&A Fairness All U.S. Transactions Restructuring Rankings Advisory Rankings Adv isor Deals Adv isor Deals Adv isor Deals

1 Houlihan Lokey 174 1 Houlihan Lokey 63 1 Houlihan Lokey 1,001

2 Goldman Sachs & Co 173 2 Rothschild & Co. 48 2 JP Morgan 959 3 JP Morgan 164 3 Lazard 36 3 Bank of America Merrill Lynch 699 4 Morgan Stanley 132 4 PJT Partners LP 35 4 Duff & Phelps 672 5 Barclays 106 5 Moelis & Co. 22 5 Morgan Stanley 660 Source: Thomson Reuters. Announced or completed Source: Thomson Reuters Source: Thomson Reuters transactions.

No. 1 U.S. M&A Advisor No. 1 Global Restructuring Advisor No. 1 Global M&A Fairness Opinion Advisor Over the Past 20 Years Top 10 Global M&A Advisor 1,000+ Transactions Completed Valued at More Than $2.5 Trillion 1,000+ Annual Valuation Leading Capital Markets Advisor Collectively Engagements

Selected Transactions

the coatings subsidiary of has merged with has completed a merger with the chemicals business of PPG in a has completed the spin-off of Reverse Morris Trust transaction has sold certain assets to

has been acquired by

Kansai Paint

Financial Opinion Fairness Opinion Sellside Advisor Fairness Opinion Financial Advisor

a portfolio company of has acquired

has been acquired by has been acquired by

has been acquired by from

Arsenal Capital Partners

Sellside Advisor Sellside Advisor Financial Opinion Buyside Advisor

Tombstones included herein represent transactions closed from 2010 forward. 3 Houlihan Lokey Media Mentions

ICIS Chemical Business Interviews Lee Harrs for Feature on Chemicals M&A Activity

“We see a lot of aggressive behavior from buyers with an increase in preemptive approaches where strategics and sponsors are trying to pull an asset from a process or even before, testing the market,” said Harrs. “If it’s a perfect fit, there’s no reason to not act preemptively. You want to determine what the seller deems important, and at least put yourself on the radar screen to separate yourself from the pack.” “For a high-quality asset with a leadership position and attractive growth prospects, sponsors will pay up. If you have high conviction on growth, that will justify a premium multiple,” said Harrs. “Some buyers just want to sit it out, as valuations are at historical highs. Some are instinctively not comfortable paying double-digit multiples, as there’s the risk that if business turns down, they could be stuck with asset or generate subpar negative returns,” said Harrs. “Private equity is actually able to prevail in competitive situations with strategics. They are very motivated and well capitalized, which is supportive of high multiples,” Harrs noted. Yet overall, “good times will continue to roll,” he said. “Some assets are fairly valued in the high single digits and others into the teens—you need to distinguish based on a number of factors or there will be a disconnect,” said Harrs. “Some assets are less scarce and less valuable. Depending on the subsector, we’re seeing a wide range from 8x EBITDA to the teens. You can drive a truck through that.”

ICIS Top Chemical M&A: Buyers step up to chemical M&A, June 7, 2018

4 Selected Recent M&A News

LyondellBasell, Braskem Confirm Merger Talks (Wall Street Journal, June 15, 2018) “Chemical companies LyondellBasell Industries NV and Braskem SA said Friday that they have entered into exclusive talks regarding a potential merger. Braskem, which has a market capitalization of $8.7 billion, is co-owned by Brazilian state oil firm Petróleo Brasileiro SA, known as Petrobras, and construction firm Odebrecht SA. According to the company, Odebrecht controls 50.1% of the voting shares, while Petrobras controls 47%. The company says it is the biggest producer of polypropylene in the U.S. LyondellBasell has been negotiating with Odebrecht to buy Braskem, but until now had not been allowed to perform due diligence, which is often a precursor to a merger agreement, according to people familiar with the matter. On Friday, the two companies said they would begin the process of due diligence, negotiating definitive agreements, and obtaining corporate approvals. The companies said the talks were preliminary. When the Journal reported on the talks in October, Odebrecht had indicated it wanted to keep Braskem in its portfolio. The process could take a few months, according to a person familiar with the matter, and there is no guarantee there will be a deal.”

After Nearly Two-Year Merger Process, Bayer Finally Owns Monsanto (St. Louis Post Dispatch, June 7, 2018) “Nearly two years after Bayer’s acquisition of Monsanto was first announced, the financial part of the $63 billion merger was finally completed Thursday. ‘Today’s closing represents an important milestone toward the vision of creating a leading agricultural company, supporting growers in their efforts to be more productive and sustainable for the benefit of our planet and consumers,’ said Hugh Grant, outgoing chairman and CEO of Monsanto. The St. Louis region will become Bayer’s North American headquarters and retain its presence as a leading hub of biotech research. Bayer’s crop science researchers, for instance, will join Monsanto’s research campus in Chesterfield after moving from their current home in North Carolina. Bayer has already identified an estimated $1.2 billion in ‘synergies’ that it could realize from the merger within a four-year period. Of that figure, about $200 million stems from projected sales, while roughly $1 billion is tied to overlapping ‘infrastructural-type costs.’”

5 Selected Recent M&A News (cont.)

Flavor Giant IFF Goes Natural in $6.4 Billion Deal (The Wall Street Journal, May 7, 2018) “International Flavors & Fragrances Inc. agreed to buy Israel-based rival Frutarom Industries Ltd. in a $6.4 billion cash-and-stock deal that gives one of the world’s largest flavoring makers a foothold in natural foods. ‘The deal is expensive and risky,’ said Brett Hundley, a food analyst with The Vertical Group. ‘There’s potential for significant cost savings and improved sales,’ he said, ‘but IFF has a lot of work ahead of it.’ The company and its competitors sell such ingredients as colorings, flavorings, and texturizers to be used in foods made by better-known packaged food and consumer products companies. The roughly $28 billion global market for flavors and fragrances has been under pressure recently to help big brands meet consumer demands for healthier, simpler ingredients.”

6 Public Markets Overview

Median TEV/EBITDA Multiples

15.0x

12.9x 12.2x 11.9x

10.5x 10.4x 10.2x 10.0x 9.2x

7.5x

5.0x

0.0x Basic / Diversified Specialty Large-Cap Specialty Mid-Cap Chemicals Distribution

Jun 2017 Jun 2018

Stock Price Index

Basic / Diversified Specialty Large-Cap Specialty Mid-Cap Chemicals Distribution S&P 500 S&P 500 Chemicals Index STOXX EUR 600 STOXX EUR 600 Chemicals

140.0%

130.0%

120.0%

110.0%

100.0%

90.0%

80.0% Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Source: Bloomberg and S&P Capital IQ 7 Selected Chemical Inputs (weekly index prices)

Crushing Crude Oil (WTI) U.S. Gulf Ethylene (FD)

($ per barrel) ($ per pound)

$75 $0.35

$70 $0.30 $65

$0.25 $60

$55 $0.20

$50 $0.15 $45

$40 $0.10 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

U.S. Gulf Propylene (FD) U.S. Gulf Butadiene (CIF)

($ per pound) ($ per pound)

$0.50 $0.80

$0.45 $0.70

$0.40 $0.60 $0.35 $0.50 $0.30 $0.40 $0.25 $0.30 $0.20

$0.15 $0.20

$0.10 $0.10 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Sources: Bloomberg, Polymer Update 8 Selected Chemical Inputs (weekly index prices, cont.)

U.S. Gulf Benzene (FOB) U.S. Mixed Xylene (FOB)

($ per gallon) ($ per gallon)

$3.10 $3.60

$3.40 $2.90

$3.20 $2.70

$3.00 $2.50

$2.80 $2.30

$2.60 $2.10

$2.40 $1.90

$2.20 $1.70 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Natural Gas (Henry Hub) U.S. Toluene (FOB)

($ per million Btu) ($ per gallon)

$3.10 $7.00 $2.90

$6.00 $2.70

$2.50 $5.00 $2.30

$4.00 $2.10

$1.90 $3.00 $1.70

$2.00 $1.50 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Sources: Bloomberg, Polymer Update 9 Selected Macroeconomic Data

U.S. Total Monthly Automotive Sales U.S. Privately Owned Housing Units Started (millions) (millions) 19.5 1,400

19.0 1,350

18.5 1,300 18.0 1,250 17.5 1,200 17.0 1,150 16.5 1,100 16.0

15.5 1,050

15.0 1,000 May-17 Aug-17 Nov-17 Feb-18 May-18 May-17 Aug-17 Nov-17 Feb-18 May-18

Source: Federal Reserve Bank of St. Louis Source: U.S. Census Bureau

U.S. QoQ Real GDP Growth U.S. Consumer Price Index

(% Change from Preceding Period) 252 6%

5% 250

4% 248

3% 246 2%

244 1%

0% 242 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 -1% 2014 2014 2015 2015 2016 2016 2017 2017 2018 240 May-17 Aug-17 Nov-17 Feb-18 May-18 -2%

Source: Federal Reserve Bank of St. Louis Source: Federal Reserve Bank of St. Louis

10 Selected Macroeconomic Data (cont.)

U.S. Average Weekly Chemical Railcar Loadings U.S. Chemicals Activity Barometer Index (thousands) 34 125

33 120 32 115 31

110 30

29 105

28 100 Jun-15 Jun-16 Jun-17 Jun-18 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18

Source: Association of American Railroads Source: American Chemistry Council, Bloomberg

11 Selected Public Comparables

Basic/Diversified

(as of 6/30/2018, $ in millions, except per-share prices) LTM 6/30/2018 Enterprise Value / Stock Stock Performance (% Change) Equity Enterprise Gross EBITDA LTM LTM Company Name Ticker Price 1 Month 3 Month 1 Year Value Value Revenue Margin EBITDA Margin Revenue EBITDA BASF SE DB:BAS $95.57 -3.0% -5.1% 2.2% $87,775.7 $101,160.4 $75,582.8 31.8% $14,077.7 18.6% 1.34x 7.2x Bayer Aktiengesellschaft DB:BAYN $110.61 -4.0% -1.5% -18.0% $103,145.4 $104,829.0 $42,470.1 67.6% $10,855.0 25.6% 2.47x 9.7x Celanese Corporation NYSE:CE $111.06 -2.7% 11.3% 18.7% $15,088.1 $18,764.1 $6,854.0 26.8% $1,555.0 22.7% 2.74x 12.1x Covestro AG DB:1COV $89.44 0.2% -9.3% 22.7% $17,332.4 $17,568.0 $17,146.2 36.1% $4,271.4 24.9% 1.02x 4.1x DowDuPont Inc. NYSE:DWDP $65.92 3.1% 5.6% NA $152,986.3 $178,716.3 $81,175.0 26.1% $15,843.0 19.5% 2.20x 11.3x Huntsman Corporation NYSE:HUN $29.20 -9.7% 1.1% 14.6% $6,984.1 $9,734.1 $9,071.0 22.9% $1,421.0 15.7% 1.07x 6.9x LANXESS Aktiengesellschaft XTRA:lxs $77.94 -0.7% 2.4% 2.2% $7,133.0 $11,206.1 $9,784.2 24.5% $1,331.2 13.6% 1.15x 8.4x LyondellBasell Industries N.V. NYSE:LYB $109.85 -1.4% 6.5% 31.1% $42,951.4 $48,729.4 $35,821.0 18.8% $6,864.0 19.2% 1.36x 7.1x Methanex Corporation TSX:MX $70.68 6.0% 21.1% 62.5% $5,815.8 $7,183.8 $3,492.9 23.8% $830.4 23.8% 2.06x 8.7x Olin Corporation NYSE:OLN $28.72 -12.4% -3.7% -3.9% $4,802.3 $8,260.4 $6,613.5 14.3% $1,139.0 17.2% 1.25x 7.3x The Chemours Company NYSE:CC $44.36 -10.9% -4.0% 24.9% $7,892.2 $10,618.2 $6,705.0 30.6% $1,655.0 24.7% 1.58x 6.4x Westlake Chemical Corporation NYSE:WLK $107.63 -8.7% -0.4% 65.3% $13,948.3 $16,724.3 $8,504.0 24.6% $2,156.0 25.4% 1.97x 7.8x

Median $9,427.6 25.4% $1,905.5 21.1% 1.5x 7.5x

Mean $25,268.3 29.0% $5,166.6 20.9% 1.7x 8.1x

Specialty Large-Cap (>$5 billion EV)

(as of 6/30/2018, $ in millions, except per-share prices) LTM 6/30/2018 Enterprise Value / Stock Stock Performance (% Change) Equity Enterprise Gross EBITDA LTM LTM Company Name Ticker Price 1 Month 3 Month 1 Year Value Value Revenue Margin EBITDA Margin Revenue EBITDA Albemarle Corporation NYSE:ALB $94.33 1.4% 5.3% -9.9% $10,448.3 $11,375.3 $3,171.5 37.7% $905.4 28.5% 3.59x 12.6x Arkema S.A. ENXTPA:AKE $118.31 -2.7% -9.9% 11.6% $9,033.3 $10,512.7 $9,821.5 22.9% $1,673.1 17.0% 1.07x 6.3x Ashland Global Holdings Inc. NYSE:ASH $78.18 0.4% 13.2% 18.5% $4,878.7 $7,291.7 $3,667.0 28.8% $615.0 16.8% 1.99x 11.9x Clariant AG SWX:CLN $23.98 0.4% -0.8% 9.8% $7,894.9 $9,568.8 $6,677.2 29.7% $918.9 13.8% 1.43x 10.4x Eastman Chemical Company NYSE:EMN $99.96 -4.1% -4.1% 19.9% $14,270.2 $21,051.2 $10,055.0 26.5% $2,331.0 23.2% 2.09x 9.0x Ecolab Inc. NYSE:ECL $140.33 -1.0% 3.7% 6.8% $40,488.1 $47,797.0 $14,376.4 46.2% $3,019.6 21.0% 3.32x 15.8x Evonik Industries AG DB:EVK $34.28 -1.3% -2.5% 7.6% $15,958.6 $19,368.9 $17,170.7 31.6% $3,035.8 17.7% 1.13x 6.4x FMC Corporation NYSE:FMC $89.21 2.2% 22.0% 21.6% $12,000.0 $14,990.5 $4,098.8 44.8% $1,151.7 28.1% 3.66x 13.0x Johnson Matthey Plc LSE:JMAT $47.75 6.6% 9.5% 25.7% $9,167.3 $10,059.3 $19,821.7 6.4% $934.8 4.7% 0.51x 10.8x Koninklijke DSM N.V. ENXTAM:DSM $100.48 2.0% 0.9% 37.9% $17,387.1 $18,126.8 $10,624.2 37.4% $1,842.3 17.3% 1.71x 9.8x Solvay SA ENXTBR:SOLB $126.18 -6.3% -9.6% -6.6% $13,036.9 $16,909.2 $12,710.3 27.9% $2,382.5 18.7% 1.33x 7.1x W. R. Grace & Co. NYSE:GRA $73.31 3.3% 20.0% 3.1% $4,933.5 $6,336.8 $1,806.2 39.6% $436.9 24.2% 3.51x 14.5x Wacker Chemie AG XTRA:WCH $130.85 -22.2% -19.9% 20.4% $6,500.3 $6,954.4 $5,874.0 19.8% $1,100.2 18.7% 1.18x 6.3x

Median $9,821.5 29.7% $1,151.7 18.7% 1.7x 10.4x

Mean $9,221.1 30.7% $1,565.2 19.2% 2.0x 10.3x

EV ref ers to Enterprise Value.

Source: S&P Capital IQ 12 Selected Public Comparables (cont.)

Specialty Mid-Cap (<$5 billion EV)

(as of 6/30/2018, $ in millions, except per-share prices) LTM 6/30/2018 Enterprise Value / Stock Stock Performance (% Change) Equity Enterprise Gross EBITDA LTM LTM Company Name Ticker Price 1 Month 3 Month 1 Year Value Value Revenue Margin EBITDA Margin Revenue EBITDA Balchem Corporation NasdaqGS:BCPC $98.14 1.1% 20.7% 26.7% $3,151.1 $3,318.7 $635.1 31.9% $151.2 23.8% 5.23x 21.9x Elementis plc LSE:ELM $3.34 -14.2% -20.3% -12.5% $1,543.8 $1,828.0 $820.6 38.1% $158.6 19.3% 2.23x 11.5x Ferro Corporation NYSE:FOE $20.85 1.7% -9.9% 16.0% $1,759.7 $2,525.3 $1,549.3 29.3% $237.0 15.3% 1.63x 10.7x Fuchs Petrolub SE DB:FPE3 $49.52 -7.5% -7.9% -9.3% $6,733.5 $6,525.8 $2,960.0 35.0% $494.7 16.7% 2.20x 13.2x GCP Applied Technologies Inc. NYSE:GCP $28.95 -9.1% -1.4% -3.5% $2,085.4 $2,036.9 $1,109.3 37.9% $146.7 13.2% 1.84x 13.9x H.B. Fuller Company NYSE:FUL $53.68 3.4% 10.2% 5.0% $2,716.9 $5,017.6 $2,743.5 27.0% $315.2 11.5% 1.83x 15.9x Ingevity Corporation NYSE:NGVT $80.86 4.8% 12.2% 43.8% $3,403.4 $4,108.6 $1,037.4 35.7% $276.7 26.7% 3.96x 14.8x Innophos Holdings, Inc. NasdaqGS:IPHS $47.60 0.4% 21.2% 9.0% $930.2 $1,234.5 $789.1 19.8% $111.7 14.2% 1.56x 11.1x Innospec Inc. NasdaqGS:IOSP $76.55 1.0% 12.2% NA $1,868.0 $2,009.1 $1,373.2 30.8% $182.5 13.3% 1.46x 11.0x Koppers Holdings Inc. NYSE:KOP $38.35 -5.1% -5.5% 4.8% $809.8 $1,560.3 $1,535.0 22.4% $206.0 13.4% 1.02x 7.6x NewMarket Corporation NYSE:NEU $404.50 6.0% 1.7% -11.5% $4,767.9 $5,319.9 $2,244.8 28.1% $388.8 17.3% 2.37x 13.7x OMNOVA Solutions Inc. NYSE:OMN $10.40 -1.9% -5.0% 8.9% $466.7 $726.3 $772.2 26.1% $82.9 10.7% 0.94x 8.8x PQ Group Holdings Inc. NYSE:PQG $18.00 8.2% 31.8% NA $2,434.3 $4,627.8 $1,505.4 24.8% $359.0 23.8% 3.07x 12.9x Quaker Chemical Corporation NYSE:KWR $154.87 0.5% 6.6% 6.8% $2,063.3 $2,047.3 $858.0 35.6% $117.6 13.7% 2.39x 17.4x Stepan Company NYSE:SCL $78.01 8.2% -5.9% -9.3% $1,766.5 $1,813.5 $1,980.8 17.0% $229.3 11.6% 0.92x 7.9x

Median $1,373.2 29.3% $206.0 14.2% 1.8x 12.9x

Mean $1,460.9 29.3% $230.5 16.3% 2.2x 12.8x

Chemicals Distribution

Median $3,895.0 21.2% $199.2 7.2% 0.7x 10.2x

Mean $5,940.7 18.9% $397.7 7.4% 0.9x 12.0x

EV ref ers to Enterprise Value.

Source: S&P Capital IQ 13 About Houlihan Lokey

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