Funding Patterns in the North American Specialty Chemicals Industry : Increases in Merger and Acquisition Activity to Constitute a Major Part of Future Funding Requirements
This study provides a breakdown of the fund sourcing and deployment patterns in the North American specialty chemicals industry. Historical funding trends were analyzed to provide insights into the mode of funding (debt or equity), the instruments used to raise these funds, and the funding patterns across small-, medium-, and large-sized companies. In addition, the current and future trends that drive funding requirements in this industry were analyzed and used as a basis for providing estimates of future funding requirements.
Historically, small-sized firms in the specialty chemicals industry have struggled to raise funds from capital markets due to the volatility in their financials. Their reliance is more on private equity (PE) and venture capital (VC) funding to sustain operations and investment. Small companies that have well-established research and development (R&D) or distribution capabilities get quickly acquired by larger companies if they are unable to raise enough cash to sustain their growth. Medium companies with revenues greater than $ million have been able to secure significant amounts of funding from capital markets. They predominantly rely on debt financing with a growing scale of operations so they can benefit from financial leverage.
Large companies maintain a stable debt-to-capital ratio with a marginal tendency towards leveraging. They, however, vary their debt levels depending on the expected interest rates in the market. The US Federal Reserve’s gradual withdrawal of quantitative easing measures is likely to see large companies increase their reliance on equity financing to avoid higher interest expenses arising from debt. The bond markets have been dominated by corporate medium term notes (MTNs) due to their characteristic flexibility in structure and documentation. MTNs are closely followed by the traditional mode of debt financing through corporate debentures. In the equity market, shelf-registration, followed by public investment in private equity (PIPE) deals, have been the most popular mode of funding due to their lower cost of issuance.
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