VALUATIONS IN THE SPECIALTY CHEMICAL … 2004 Piper Jaffray M&A Insights Valuations in the Specialty...

M E R G E R S & A C Q U I S I T I O N S

Robert D. FrostPrincipal612 [email protected]

M. Shane McDanielAssociate612 [email protected]

Scott T. HartmanAnalyst612 [email protected]

VALUATIONS IN THE SPECIALTYCHEMICAL INDUSTRY

M A R C H 2 0 0 4

March 2004

Piper Jaffray M&A Insights Valuations in the Specialty Chemical Industry | 1

T A B L E O F C O N T E N T S

Part I: Executive Summary ........................................................................................... 2

Part II: Public Company Valuations .............................................................................. 5

Part III: Comparable Transactions ................................................................................ 9

Part IV: Valuation Trends: Specialty vs. Basic ............................................................... 12

Part V: Valuation Outlook .......................................................................................... 14

Appendix I ................................................................................................................ 15

Appendix II ............................................................................................................... 17

March 2004

2 | Valuations in the Specialty Chemical Industry �Piper Jaffray M&A Insights

Valuation Overview The principal determinant of value for a specialty chemical company is its ability togenerate future free cash flow, which is a direct result of revenue growth, profitability andcapital investment requirements. Two common methods of valuing a company based onfuture free cash flow generation are: (i) a discounted cash flow analysis and (ii) a leveragedbuyout analysis. While these two methods allow for a detailed valuation analysis, they alsorequire information that is not widely available and a number of highly subjectiveassumptions. Two other useful yardsticks to gauge valuation, which are consequently usedin this report, are: (i) the prices at which companies trade in the public markets and (ii) theprices paid in mergers and acquisitions transactions. In this context, prices are reflected asa multiple of revenue, EBIT (earnings before interest and taxes) and EBITDA (earningsbefore interest, taxes, depreciation and amortization). It should be noted that the majorityof the companies selected for our analyses had enterprise values in excess of $1 billion.Valuations of individual companies can vary substantially as a result of factors such assize, growth prospects and margins.

P A R T I—E X E C U T I V E S U M M A R Y

Preface In this report, we take a closer look at valuations within the specialty chemical industry. Inparticular, we focus on the prices at which companies are trading in the public marketsand the prices paid in mergers and acquisitions ("M&A") activity. These two valuationtechniques will be applied to various public and private companies within the seven sectorspreviously defined in our November 2003 report entitled Specialty Chemical IndustryOverview. We also analyze the relative valuations of specialty and basic chemicalmanufacturers over time and provide a broad outlook on industry valuation overall.

L T M M A R G I N S A N D T R A D I N G M U L T I P L E S

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Source: Piper Jaffray estimates and company reports

Public CompanyValuations

Our December 12, 2003 analysis of publicly traded specialty chemical companies revealsthe following:

Financial Metric Mean Median

Operating Margin 8.8% 9.2%

EBITDA Margin 14.0% 13.8%

EBIT Multiple 15.0x 13.3x

EBITDA Multiple 9.3x 8.9x

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L T M T R A N S A C T I O N M U L T I P L E S

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ComparableTransactions

Our analysis of M&A transactions between 1996 and December 29, 2003 reveals thefollowing:

Source: Thomson Financial Securities and Piper Jaffray estimates

Financial Metric Mean Median

EBIT Multiple 11.2x 11.2x

EBITDA Multiple 8.2x 7.7x

Valuation Trends &Outlook

Historically, specialty chemical manufacturers have garnered premium valuations in thepublic markets relative to their basic chemical counterparts. This was certainly truethroughout most of the 1990s and even early into the new millennium. In recent years thistrend has reversed, however, as many specialty companies have traded and continue totrade at multiples similar to or below those of basic manufacturers. Despite improvedfinancial performance in the near term by many specialty manufacturers, this trendremains evident in today's markets. Influencing this trend have been a number of dynamicsin the chemical industry, public equity markets and investor community. These dynamicsinclude: (i) a lack of critical financial mass in the industry, (ii) the scaling back of sectorresearch coverage, (iii) the challenging operating environment in recent years, (iv) thecommoditization of certain specialty chemicals and (v) less investor distinction betweenchemical stocks.

S P E C I A L T Y V S . B A S I C — M E D I A N L T M E V / E B I T D A M U L T I P L E S

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Note: LTM multiples are as of December 31Source: Piper Jaffray estimates

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Specialty Basic

March 2004


Despite the relative valuation trends currently visible in the public markets, we believethere are a significant number of specialty chemical properties with potential to achievevery attractive valuations in the M&A marketplace. Many of these are middle marketcompanies that hold solid competitive positions in markets that are highly fragmented,enjoying significant growth, and have other favorable characteristics. An improvingeconomy, a more active strategic buyer environment and increased interest by the privateequity community all play favorably for potential sellers. Overall, we expect premiumvaluations will continue to be derived for those companies that have supportable growthprospects, strong customer relationships, proprietary products, leading market positionsand solid management teams.

March 2004


In general, the specialty chemical industry is highly fragmented with a large number ofprivate companies holding a significant share in particular market sectors. This holds truefor most of the seven sectors we focus on in this report. In addition to these privatecompanies, there are a significant number of publicly traded specialty chemical companies.These companies range from smaller, focused companies, such as H.B. Fuller with less than$850 million in market capitalization, to large, diversified companies, such as EI DuPontde Nemours, which exceeds $44 billion in market capitalization. For analysis purposes, wehave divided the public companies into categories based on their product portfolio andbusiness strategy. These categories include our seven focus segments, as well as a categoryfor diversified and other specialty manufacturers. The diversified category includescompanies that sell a variety of different specialties and have at least one product categorythat fits into our focus sectors. The other specialty manufacturers category includes agroup of companies that produce specialty chemicals that primarily fall outside of our corefocus segments. The companies are classified in this manner in order to emphasize thedifference in valuation and profitability inherent in different sectors of the industry.

P A R T I I—P U B L I C C O M P A N Y V A L U A T I O N S

P R O F I T A B I L I T Y

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1American Chemistry Council 2002 estimates for specialty chemical industry profitabilityNote: Analysis as of 12/12/03. Overall mean and median figures are calculated counting all companies once.Source: Piper Jaffray estimates and company reports

LTM Financial SummaryGross Operating EBITDA Net

Industry Margin Margin Margin Margin

Diversified Mean 27.9% 8.2% 14.6% 4.2%Median 29.4% 7.8% 15.0% 5.5%

Adhesives & Sealants Mean 29.2% 7.2% 11.2% 4.1%Median 29.2% 7.2% 11.2% 4.1%

Agricultural Chemicals Mean 25.3% 9.6% 16.4% 3.6%Median 26.9% 10.6% 17.4% 4.2%

Electronic Chemicals Mean 35.2% 11.7% 18.6% 6.2%Median 29.4% 11.6% 17.7% 5.5%

I & I Cleaners Mean 46.1% 9.1% 13.6% 4.7%Median 46.1% 9.1% 13.6% 4.7%

Paints & Coatings Mean 35.5% 9.8% 14.2% 5.0%Median 34.5% 10.4% 13.5% 5.7%

Plastic Additives Mean 28.0% 7.6% 13.9% 4.3%Median 24.4% 9.2% 14.8% 5.7%

Water Treatment Chemicals Mean 25.5% 5.9% 9.1% 2.7%Median 24.4% 3.8% 9.1% 2.0%

Other Specialties Mean 26.7% 8.0% 12.2% 4.8%Median 25.7% 7.7% 12.2% 4.8%

High 50.7% 20.4% 27.5% 13.6%Mean 29.3% 8.8% 14.0% 4.5%

Median 28.6% 9.2% 13.8% 4.6%Low 1.9% 0.3% 1.6% 0.1%

ACC Composite1 Mean 8.8% 16.9%

March 2004


There is a noticeable difference in profitability between the various groups. Overall, theelectronic chemicals group generated the highest mean and median operating margins with11.7% and 11.6%, respectively. The group's median margin is approximately 120 basispoints higher than that of the paints and coatings group and almost 800 basis points abovethe lowest group, water treatment chemicals. This difference is attributable to a number offactors, including the competitive structure of the industries and the relative "value-add"of the specialty chemical products in the end-use manufacturing process. The companieswithin the electronic chemicals group focus on creating a limited number of products for aspecialized area within the industry. Companies also tend to have less direct competitionsince there are many different processes in the production and cleaning of electronics andmanufacturers choose to compete only in a focused area of the market. Additionally, theelectronic chemicals industry plays a central role in the manufacturing of electroniccomponents, which gives chemical manufacturers the potential to generate superiormargins through proprietary formulations and value-added services and capabilities.

With respect to EBITDA margins, there is also a difference across the groups. Meanmargins ranged from 9.1% in the water treatment chemical group to 18.6% for theelectronic chemicals group. Although there is significant variance in EBITDA marginsamong companies in the diversified group, the average margin was 60 basis points higherthan the collective average of 14.0%. This is to be expected, as many diversified chemicalcompanies tend to be price setters rather than price followers in their markets.Additionally, they often achieve synergies in production, management and sales that allowthem to generate incrementally higher margins.

Operating and EBITDA margins in the specialty chemical industry have been on thedecline since the mid-1990s due to a more intense competitive environment and weakenedindustry fundamentals. In an effort to improve margins and ultimately stock performance,specialty chemical companies of all sizes have recently implemented major restructuringprograms. In 2000 and 2001 alone, Rohm & Haas, Great Lakes Chemical, DowChemical, ICI and Crompton initiated major cost-cutting efforts. For a more detailed lookat profitability at the company level, please see Appendix I.

S P E C I A L T Y C H E M I C A L M A R G I N S

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0%

5%

10%

15%

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25%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Operating Margin EBITDA Margin

Source: American Chemistry Council

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M U L T I P L E V A L U A T I O N

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Note: Analysis as of 12/12/03. Overall mean and median figures are calculated counting all companies once.Source: Piper Jaffray estimates and company reports

LTM Multiples

Company Value/

Industry 2003 CY 2004 CY Revenues EBIT EBITDA

Diversified Mean 20.7x 16.1x 1.4x 13.5x 9.5x

Median 19.4x 15.0x 1.4x 12.4x 8.8x

Adhesives & Sealants Mean 19.0x 17.0x 1.2x 16.3x 10.3x

Median 19.0x 17.0x 1.2x 16.3x 10.3x

Agricultural Chemicals Mean 17.5x 14.5x 1.4x 15.3x 8.6x

Median 18.1x 14.1x 1.4x 12.6x 7.7x

Electronic Chemicals Mean 26.0x 20.4x 2.2x 19.3x 11.1x

Median 24.7x 19.9x 1.9x 20.0x 10.9x

I & I Cleaners Mean 22.0x 19.5x 1.5x 15.1x 10.2x

Median 22.0x 19.5x 1.5x 15.1x 10.2x

Paints & Coatings Mean 21.1x 16.1x 1.3x 14.4x 9.4x

Median 17.3x 14.8x 1.3x 12.9x 8.9x

Plastic Additives Mean 20.9x 17.3x 1.1x 16.4x 8.3x

Median 18.1x 15.0x 1.1x 14.7x 8.0x

Water Treatment Chemicals Mean 22.3x 19.3x .9x 21.1x 8.9x

Median 18.1x 19.7x .9x 23.0x 7.8x

Other Specialties Mean 18.2x 14.9x 1.0x 13.0x 8.9x

Median 16.4x 15.2x .9x 12.6x 9.1x

High 38.3x 27.9x 4.2x 29.4x 16.1x

Mean 20.1x 16.4x 1.3x 15.0x 9.3x

Median 17.9x 15.3x 1.2x 13.3x 8.9x

Low 11.8x 10.1x .2x 8.6x 5.5x

P/E Multiples

Finally, there are inherent valuation differences between the sectors. The companies in theelectronic chemicals and water treatment sectors trade at a significant premium relative totheir 2004 earnings compared to their peers. The electronic chemicals group had a meanforward PE ratio of 20.4x, which is approximately 20% higher than the overall mean andapproximately 40% higher than the lowest group, agricultural chemicals. In terms ofEBITDA, the highest median multiples were generated by the electronic chemicals (10.9x),adhesives and sealants (10.3x) and I&I cleaners (10.2x) groups. Although one mightexpect the diversified group to trade at significantly higher multiples than the collectivesectors, the group only generated a median multiple of 9.5x or 0.2x above the overallmedian. One reason for this is the presence of Bayer, BASF, ICI, Ciba and Akzo Nobel,which have publicly traded American Depository Receipts ("ADRs") and are trading atlower multiples than many of their domestic peers.

Although the specialty chemical industry has few pure-play companies, most companies'activities are more concentrated than the large-cap, diversified manufacturers. While manyof the domestic diversified companies are trading at high multiples, some of the morespecialized companies have been achieving above average EBITDA multiples. PotashCorporation of Saskatchewan (13.5x) and Cabot Microelectronics (15.3x) are amongthem. Potash has demonstrated strong earnings resilience over the last few years, as its

March 2004


potash business has expanded due to the development of potash deposits in Canada, andits portfolio diversification into industrial and animal feed markets have provided a morestable earnings base than that of other fertilizer manufacturers. Cabot Microelectronics'excellent results are largely due to its focus on building a 75-80% share of the polishingslurry market for chemical planarization. A more detailed picture of individual companyand sector valuations can be found in Appendix II.

Stock Performance The recent uptick in the stock market is also affecting valuation. Investor confidence hasincreased as the economy has shown positive signs and geopolitical concerns diminish. Thecompanies in our focus groups saw share prices appreciate 26.8% during 2003 and at thetime of our analysis, approximately 70% of these companies were trading within 10% oftheir 52-week highs.

Publicly traded specialty chemical stocks have benefited as capital inflows into the equitymarkets have improved over the past several months. The companies in our focus groupskept pace with the performance of the broader market, which saw favorable gains fromthe strong recovery in more volatile sectors such as technology, communications andenergy. Overall, we expect the future performance of the specialty chemical sector to bedriven by the timing and strength of a recovery in overall U.S. economic activity.

2 0 0 3 E Q U I T Y P E R F O R M A N C E

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12/31/02 2/10/03 3/21/03 5/1/03 6/11/03 7/22/03 9/1/03 10/10/03 11/20/03 12/31/03

Inde

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Pric

es

S&P 500 Piper Jaffray Focus Group

Source: Factset

March 2004


P A R T I I I —C O M P A R A B L E T R A N S A C T I O N S

A second approach to valuing specialty chemical companies is to look at mergers andacquisitions transactions in the industry. This approach involves searching databases, newsreports, trade magazines and other informational sources to gather information aboutprospective M&A transactions. For purposes of this report, we analyzed 797 domestic andinternational transactions between January 1, 1996 and December 29, 2003. Thesetransactions are related to our focus sectors and involve companies ranging from largepublic companies to small private companies. Additionally, these transactions include onlythose in which the target was 100% acquired. While we have identified more than 750transactions over the past seven years, there are relatively few that have been publiclyannounced with complete data. This is due to the large presence of private and moderatelysized companies within the industry, and a large number of transactions involving businesssegments, which makes it difficult to determine EBIT and EBITDA multiples.

March 2004


Median Mean

Disclosed Transaction Value Multiples Transaction Value Multiples

Transaction Size Deals Value Revenues EBIT EBITDA Revenues EBIT EBITDA

$0-$100 Million 101 3,514 0.7x 8.7x 5.8x 1.6x 9.4x 6.7x

$100-$250 Million 36 5,800 1.1x 11.5x 7.7x 1.3x 11.2x 8.2x

$250-$500 Million 27 9,434 1.2x 9.6x 8.2x 1.3x 10.0x 8.9x

> $500 Million 48 104,903 1.6x 12.5x 8.6x 1.7x 12.3x 8.6x

Total Disclosed 212 123,651$ 1.1x 11.2x 7.7x 1.5x 11.2x 8.2x

Undisclosed 585 -$ - - - - - -

Total 797 123,651$ 1.1x 11.2x 7.7x 1.5x 11.2x 8.2x

Median Mean

Disclosed Transaction Value Multiples Transaction Value Multiples

Year Deals Value Revenues EBIT EBITDA Revenues EBIT EBITDA

1996 28 9,659 1.2x 8.3x 6.1x 1.3x 8.6x 6.5x

1997 38 14,941 1.1x 8.6x 5.1x 1.3x 9.1x 6.0x

1998 39 26,406 1.1x 12.7x 7.8x 2.2x 13.2x 9.8x

1999 26 32,266 1.1x 13.8x 7.6x 1.6x 12.2x 8.7x

2000 30 17,807 1.2x 12.5x 9.9x 1.4x 12.6x 9.4x

2001 18 11,415 1.0x 9.6x 7.3x 1.3x 9.6x 7.3x

2002 13 5,009 nm nm nm nm nm nm

YTD 2003 20 6,148 0.8x 5.5x 4.3x 0.7x 5.5x 4.3x

Total 212 123,651$ 1.1x 11.2x 7.7x 1.1x 11.2x 8.2x

Year No. of Deals

1996 109

1997 118

1998 123

1999 93

2000 124

2001 91

2002 62

YTD 2003 77

Total 797

M & A A C T I V I T Y — J A N U A R Y 1 , 1 9 9 6 - D E C E M B E R 2 9 , 2 0 0 3

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Source: Thomson Financial Securities and Piper Jaffray estimates

March 2004


M&A activity has been an ongoing trend in our focus sectors and in the broader specialtychemicals industry. In general, most of the M&A transactions are relatively small,involving product lines or plants. Looking at Exhibit VIII above, one can see that thelargest number of M&A deals with disclosed transaction value is less than $100 million. Itshould also be noted that the majority of disclosed deals were less than $500 million intransaction value. This further illustrates the fragmentation of the specialty chemicalindustry. Overall, 71% of the disclosed deals occurred between 1996 and 2000. This canbe attributed to a number of factors, including the strong economy, the booming stockmarket and more active strategic acquirers. Although M&A activity in our focus sectorsdeclined since 2000, activity rebounded in 2003 as the second half of the year sawincreased activity.

Overall, the median and mean EBITDA multiples of 7.7x and 8.2x may not be totallyreflective of the current market because of the larger M&A volume and higher valuationmultiples received by target companies prior to 2001, more specifically between 1998 and2001. In 2002 and 2003, there were only a handful of deals with complete data and mostwere very small transactions. As one would expect, mean and median EBITDA multiplesgenerally increased with the size of the transaction. The overall mean and medianmultiples are also more heavily weighted by transactions in the >$500 million category dueto the fact that many of the targets were public companies. This increased the likelihood offinding complete financial data for the trailing twelve months. It should be noted thatvaluations of individual companies can vary substantially as a result of factors such as size,growth prospects and margins, even if they compete in the same industry sector.

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P A R T I V —V A L U A T I O N T R E N D S : S P E C I A L T Y V S . B A S I C

Historically, specialty chemical manufacturers have garnered premium valuations in thepublic markets relative to their basic chemical counterparts. This was certainly truethroughout most of the 1990s and even early into the new millennium. In recent years thistrend has reversed, however, as many specialty companies have traded and continue totrade at multiples similar to or below those of basic manufacturers.

S P E C I A L T Y V S . B A S I C — M E D I A N L T M E V / E B I T D A M U L T I P L E S

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Note: LTM Multiples are as of December 31Source: Piper Jaffray estimates

Despite improved financial performance in the near term by many specialtymanufacturers, this trend remains evident in today's markets. Influencing this trend havebeen a number of dynamics in the chemical industry, public equity markets and investorcommunity. First, the presence of few large-cap specialty chemical companies has kept anartificial lid on valuations in the sector as the minimum market capitalization and floatrequired by the public equity markets have increased significantly. This lack of criticalfinancial mass has generally hurt specialty companies and favors the basic/diversifiedsector of the industry, which contains more large-cap companies. Also affecting valuationsacross the broader markets has been the declining number of small and mid-cap stockscovered by the research community. This has certainly been true in the specialty chemicalindustry, where research coverage on both the buy-side and sell-side has scaled backsignificantly during the past few years.

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Specialty Basic

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S E L L - S I D E S E C T O R R E S E A R C H C O V E R A G E

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Source: Chemical Week

Company 1998 2003

Rohm & Haas 18 15

Great Lakes Chemical 18 8

Lubrizol 15 4

FMC 13 6

Ecolab 12 8

Engelhard 12 8

Ferro 12 4

Hercules 11 6

Schulman 11 3

Albemarle 10 5

Crompton 10 6

H.B. Fuller 9 5

Trends in the broader chemical industry have also affected relative valuation trendsbetween sectors of the industry. A weak economy, coupled with high energy and rawmaterials costs, have made for a challenging operating environment in recent years. Whilethese trends have affected both specialty and basic manufacturers, they put a significantdamper on the higher growth and margins prospects across many specialty chemicalsectors during the past decade. Adding to this has been the commoditization of certainspecialty chemicals, which has further blurred the line between basic and specialtychemicals. This has caused less investor differentiation between chemical stocks, whichinherently favors large-cap, more widely traded stocks.

March 2004


Like in many sectors, M&A activity in the specialty chemical industry picked up duringthe second half of 2003. We feel there are a growing number of positive indicators thatwill enable specialty chemical companies to achieve attractive valuations in the M&Amarket. While it is unlikely that transaction multiples will rebound fully to the levels seenduring the late 1990s, we are optimistic that good companies will continue to be highlysought after and achieve attractive valuations from potential buyers.

Improved Valuations in the Public Markets—Despite the valuation differences betweenspecialty and basic manufacturers in the public markets, valuation multiples of manypublicly traded specialty chemical companies have improved in recent months as have theperformance of the broader markets and overall investor sentiment. At the time of ouranalysis, nearly 70% of the companies in our focus groups were trading within 10% oftheir 52-week highs. During the full year 2003, these companies saw their share pricesappreciate 26.8% in aggregate.

Improving Economy—Economic expansion was firmly entrenched in 2003 as U.S. GrossDomestic Product showed exceptionally strong growth during the latter part of the year.As the economy continues to strengthen quarter over quarter, specialty chemicalcompanies can continue to expect improved performance and top-line growth. Overall, weexpect this to have a positive impact on M&A valuations and overall activity.

More Active Strategic Buyers—After several years on the "sidelines" due to internalrestructuring efforts, weak demand and depressed stock prices, many CEOs began to focusagain on acquisition opportunities during 2003. There have been a number of specialtychemical transactions completed and announced in recent months by industryconsolidators. Recent conversations with industry participants across numerous sectorsalso confirm a renewed interest in M&A opportunities, especially within the middlemarket.

Increased Private Equity Interest—Financial sponsors and the private equity communityhave shown increased interest in the specialty chemical industry in recent years. It isestimated that private equity firms accounted for nearly 20% of all chemicals transactionsin 2003. Middle market specialty chemical companies were a popular target during theyear, as the majority of private equity transactions announced in the specialty chemicalspace were less than $500 million in transaction value. A number of larger deals were alsoannounced, including the $4.5 billion leveraged buyout of Ondeo Nalco by an investorgroup led by Blackstone.

Industry Structure—Some industry sectors have been particularly hard hit in recent years,but the overall structure of the specialty chemical industry remains attractive. While someindustry sectors are dominated by a handful of large diversified global players, therecontinues to be a large number of middle market companies. Many of these companiesoffer proprietary products and hold leading positions in highly fragmented and growingmarkets. Given these competitive dynamics, we feel there is ample opportunity to achieveattractive valuation multiples. We expect premium valuations will continue to be generatedby those companies that have supportable growth prospects, strong customerrelationships, proprietary products, leading market positions and solid management teams.

P A R T V —V A L U A T I O N O U T L O O K

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A P P E N D I X I

High 50.7% 12.8% 19.6% 6.9%

Mean 46.1% 9.1% 13.6% 4.7%

Median 46.1% 9.1% 13.6% 4.7%

Low 41.6% 5.5% 7.7% 2.4%

$ in millions except per share LTM Financial Summary

Diversified Gross Gross Operating EBITDA Net Net

Ticker Company Revenues Profit Margin Margin EBITDA Margin Income Margin

DD Du Pont (E I) De Nemours $26,201.0 18,658.0 28.8% 6.3% 3,265.0 12.5% 1,673.0 6.4%

DOW Dow Chemical $31,261.0 27,339.0 12.5% 4.5% 3,315.0 10.6% 665.8 2.1%

BF Basf Ag -Adr $35,934.5 28,793.8 19.9% 7.8% 5,395.8 15.0% 1,037.0 2.9%

AKZOY Akzo Nobel Nv -Adr $15,161.6 8,668.9 42.8% 9.2% 2,242.3 14.8% 865.3 5.7%

BAY Bayer Ag -Adr $31,347.9 18,140.2 42.1% 6.7% 5,555.9 17.7% 165.5 0.5%

PPG Ppg Industries Inc. $8,571.0 5,418.0 36.8% 11.4% 1,370.0 16.0% 493.0 5.8%

ROH Rohm & Haas Co. $6,209.0 4,386.0 29.4% 10.2% 1,101.0 17.7% 339.2 5.5%

CSB Ciba Spclty Chemicals -Adr $5,124.4 3,420.3 33.3% 11.0% 844.1 16.5% 293.6 5.7%

ICI Imperial Chem Inds Plc -Adr $9,461.3 8,972.8 5.2% 6.8% 1,005.9 10.6% 294.7 3.1%

High 42.8% 11.4% 17.7% 6.4%

Mean 27.9% 8.2% 14.6% 4.2%

Median 29.4% 7.8% 15.0% 5.5%

Low 5.2% 4.5% 10.6% 0.5%


Adhesives & Sealants Gross Gross Operating EBITDA Net Net


AVY Avery Dennison Corp. $4,674.5 3,230.8 30.9% 9.3% 609.4 13.0% 264.1 5.6%

FUL Fuller (H. B.) Co. $1,270.8 920.8 27.5% 5.1% 119.5 9.4% 33.2 2.6%

High 30.9% 9.3% 13.0% 5.6%

Mean 29.2% 7.2% 11.2% 4.1%

Median 29.2% 7.2% 11.2% 4.1%

Low 27.5% 5.1% 9.4% 2.6%


Agricultural Chemicals Gross Gross Operating EBITDA Net Net


SYT Syngenta Ag -Adr $6,400.0 3,205.0 49.9% 11.0% 1,315.0 20.5% 289.6 4.5%

MON Monsanto Co. $4,728.0 2,543.0 46.2% 12.2% 1,032.0 21.8% 290.0 6.1%

POT Potash Corp Sask Inc. $2,319.4 1,973.4 14.9% 8.3% 419.8 18.1% 26.5 1.1%

AGU Agrium Inc. $2,370.0 1,692.0 28.6% 11.4% 412.0 17.4% 100.0 4.2%

FMC Fmc Corp. $1,874.2 1,370.0 26.9% 10.3% 315.7 16.8% 37.0 2.0%

IGL Imc Global Inc. $2,067.5 1,891.3 8.5% 4.4% 267.9 13.0% (41.2) NM

TRA Terra Industries Inc. $1,254.3 1,230.7 1.9% NM 92.5 7.4% (35.3) NM

High 49.9% 12.2% 21.8% 6.1%

Mean 25.3% 9.6% 16.4% 3.6%

Median 26.9% 10.6% 17.4% 4.2%

Low 1.9% 4.4% 7.4% 1.1%


Electronic Chemicals Gross Gross Operating EBITDA Net Net


APD Air Products & Chemicals Inc. $6,053.0 4,406.3 27.2% 11.6% 1,335.6 22.1% 379.8 6.3%

ROH Rohm & Haas Co. $6,209.0 4,386.0 29.4% 10.2% 1,101.0 17.7% 339.2 5.5%

CCMP Cabot Microelectronics Corp. $265.5 134.0 49.5% 20.4% 73.1 27.5% 36.0 13.6%

MRD Macdermid Inc. $691.7 403.5 41.7% 13.5% 118.3 17.1% 28.2 4.1%

ARJ Arch Chemicals Inc. $1,004.9 719.7 28.4% 2.8% 84.0 8.4% 14.7 1.5%

High 49.5% 20.4% 27.5% 13.6%

Mean 35.2% 11.7% 18.6% 6.2%

Median 29.4% 11.6% 17.7% 5.5%

Low 27.2% 2.8% 8.4% 1.5%


I & I Cleaners Gross Gross Operating EBITDA Net Net


ECL Ecolab Inc. $3,491.5 1,722.6 50.7% 12.8% 682.9 19.6% 242.4 6.9%

AYI Acuity Brands Inc. $2,049.3 1,197.8 41.6% 5.5% 158.2 7.7% 49.1 2.4%

March 2004



Paints & Coatings Gross Gross Operating EBITDA Net Net


PPG Ppg Industries Inc. $8,571.0 5,418.0 36.8% 11.4% 1,370.0 16.0% 493.0 5.8%

ROH Rohm & Haas Co. $6,209.0 4,386.0 29.4% 10.2% 1,101.0 17.7% 339.2 5.5%

SHW Sherwin-Williams Co. $5,279.4 2,883.8 45.4% 10.4% 666.5 12.6% 318.3 6.0%

VAL Valspar Corp. $2,195.7 1,490.0 32.1% 11.3% 303.0 13.8% 122.8 5.6%

RPM Rpm International Inc. $2,131.2 1,158.6 45.6% 10.3% 279.4 13.1% 122.8 5.8%

FOE Ferro Corp. $1,581.2 1,202.6 23.9% 4.9% 189.1 12.0% 21.6 1.4%

High 45.6% 11.4% 17.7% 6.0%

Mean 35.5% 9.8% 14.2% 5.0%

Median 34.5% 10.4% 13.5% 5.7%

Low 23.9% 4.9% 12.0% 1.4%


Plastic Additives Gross Gross Operating EBITDA Net Net


AKZOY Akzo Nobel Nv -Adr $15,161.6 8,668.9 42.8% 9.2% 2,242.3 14.8% 865.3 5.7%


CYT Cytec Industries Inc. $1,454.4 1,099.8 24.4% 10.0% 236.0 16.2% 95.8 6.6%

GLK Great Lakes Chemical Corp. $1,453.4 1,157.6 20.4% 3.8% 143.6 9.9% 35.8 2.5%

ALB Albemarle Corp. $1,035.6 807.1 22.1% 9.5% 179.8 17.4% 77.5 7.5%

FOE Ferro Corp. $1,581.2 1,202.6 23.9% 4.9% 189.1 12.0% 21.6 1.4%

CK Crompton Corp. $2,560.4 1,816.4 29.1% 4.9% 265.5 10.4% 27.1 1.1%

High 42.8% 11.0% 17.4% 7.5%

Mean 28.0% 7.6% 13.9% 4.3%

Median 24.4% 9.2% 14.8% 5.7%

Low 20.4% 3.8% 9.9% 1.1%


Water Treatment Chemicals Gross Gross Operating EBITDA Net Net



ASH Ashland Inc. $7,518.0 6,005.0 20.1% NM 123.0 1.6% 94.0 1.3%

GLK Great Lakes Chemical Corp. $1,453.4 1,157.6 20.4% 3.8% 143.6 9.9% 35.8 2.5%

ARJ Arch Chemicals Inc. $1,004.9 719.7 28.4% 2.8% 84.0 8.4% 14.7 1.5%

High 33.3% 11.0% 16.5% 5.7%

Mean 25.5% 5.9% 9.1% 2.7%

Median 24.4% 3.8% 9.1% 2.0%

Low 20.1% 2.8% 1.6% 1.3%


Other Specialties Gross Gross Operating EBITDA Net Net


EC Engelhard Corp. $3,586.0 2,959.3 17.5% 7.5% 394.9 11.0% 221.7 6.2%

IFF Intl Flavors & Fragrances $1,854.0 1,066.2 42.5% 17.3% 407.2 22.0% 185.3 10.0%

LZ Lubrizol Corp. $2,027.0 1,482.8 26.8% 8.9% 280.0 13.8% 109.7 5.4%

HPC Hercules Inc. $1,811.0 1,130.0 37.6% 14.6% 362.0 20.0% 80.4 4.4%

OMG Om Group Inc. $5,018.1 4,702.7 6.3% 1.2% 123.2 2.5% 3.0 0.1%

EY Ethyl Corp. $717.6 561.3 21.8% 6.2% 95.7 13.3% 18.3 2.6%

KWR Quaker Chemical Corp. $318.4 201.4 36.7% 7.8% 32.9 10.3% 15.1 4.8%

OMN Omnova Solutions Inc. $679.1 512.6 24.5% 0.3% 29.4 4.3% (16.0) NM

High 42.5% 17.3% 22.0% 10.0%

Mean 26.7% 8.0% 12.2% 4.8%

Median 25.7% 7.7% 12.2% 4.8%

Low 6.3% 0.3% 2.5% 0.1%

A P P E N D I X I , CONTINUED

March 2004


A P P E N D I X I I

$ in millions except per share LTM Multiples

I & I Cleaners Stock Price % of 52 Market Company Company Value/

Ticker Company 12/12/03 Week High Cap. Value 2003 CY 2004 CY Revenues EBIT EBITDA

ECL Ecolab Inc. $27.84 99.7% $7,173 $7,755 27.3x 24.4x 2.2x 17.4x 11.4x

AYI Acuity Brands Inc. $24.25 91.7% $1,013 $1,443 16.6x 14.6x 0.7x 12.9x 9.1x

High 27.3x 24.4x 2.2x 17.4x 11.4x

Mean 22.0x 19.5x 1.5x 15.1x 10.2x

Median 22.0x 19.5x 1.5x 15.1x 10.2x

Low 16.6x 14.6x 0.7x 12.9x 9.1x

P/E Multiples


Diversified Stock Price % of 52 Market Company Company Value/


DD Du Pont (E I) De Nemours $44.43 96.2% $44,287 $52,594 27.6x 21.2x 2.0x NM 16.1x

DOW Dow Chemical $39.86 93.6% $36,693 $47,232 34.4x 20.9x 1.5x NM 14.2x

BF Basf Ag -Adr $51.60 88.7% $28,848 $33,303 19.4x 15.6x 0.9x 11.9x 6.2x

AKZOY Akzo Nobel Nv -Adr $35.28 88.8% $20,159 $23,316 12.1x 12.3x 1.5x 16.7x 10.4x

BAY Bayer Ag -Adr $27.61 87.3% $20,165 $31,020 19.9x 14.3x 1.0x 14.8x 5.6x

PPG Ppg Industries Inc $62.74 97.1% $10,661 $12,119 17.4x 14.4x 1.4x 12.4x 8.8x

ROH Rohm & Haas Co. $41.96 96.0% $9,343 $12,019 25.3x 20.6x 1.9x 19.0x 10.9x

CSB Ciba Spclty Chemicals -Adr $37.34 91.9% $5,387 $6,490 18.1x 15.0x 1.3x 11.5x 7.7x

ICI Imperial Chem Inds Plc -Adr $13.35 81.1% $3,976 $5,534 11.9x 10.9x 0.6x 8.6x 5.5x

High 34.4x 21.2x 2.0x 19.0x 16.1x

Mean 20.7x 16.1x 1.4x 13.5x 9.5x

Median 19.4x 15.0x 1.4x 12.4x 8.8x

Low 11.9x 10.9x .6x 8.6x 5.5x


Adhesives & Sealants Stock Price % of 52 Market Company Company Value/


AVY Avery Dennison Corp. $56.25 89.6% $6,214 $7,399 21.1x 19.5x 1.6x 17.0x 12.1x

FUL Fuller (H. B.) Co. $28.90 95.2% $821 $1,021 16.8x 14.5x 0.8x 15.6x 8.5x

High 21.1x 19.5x 1.6x 17.0x 12.1x

Mean 19.0x 17.0x 1.2x 16.3x 10.3x

Median 19.0x 17.0x 1.2x 16.3x 10.3x

Low 16.8x 14.5x 0.8x 15.6x 8.5x


Agricultural Chemicals Stock Price % of 52 Market Company Company Value/


SYT Syngenta Ag -Adr $13.00 93.2% $7,317 $8,824 16.3x 14.1x 1.4x 12.6x 6.7x

MON Monsanto Co. $27.99 95.2% $7,330 $8,232 18.1x 15.9x 1.7x 14.3x 8.0x

POT Potash Corp Sask Inc. $82.23 91.9% $4,316 $5,674 NA NA 2.4x 29.4x 13.5x

AGU Agrium Inc. $15.27 90.0% $1,941 $2,753 NA NA 1.2x 10.2x 6.7x

FMC Fmc Corp. $32.87 93.7% $1,160 $1,997 18.2x 13.5x 1.1x 10.3x 6.3x

IGL Imc Global Inc. $9.00 76.3% $1,036 $3,112 NM NM 1.5x NM 11.6x

TRA Terra Industries Inc. $3.18 82.6% $246 $712 NM NM 0.6x NM 7.7x

High 18.2x 15.9x 2.4x 29.4x 13.5x

Mean 17.5x 14.5x 1.4x 15.3x 8.6x

Median 18.1x 14.1x 1.4x 12.6x 7.7x

Low 16.3x 13.5x 0.6x 10.2x 6.3x


Electronic Chemicals Stock Price % of 52 Market Company Company Value/


APD Air Products & Chemicals Inc. $51.86 93.6% $11,786 $14,013 20.6x 17.5x 2.3x 20.0x 10.5x


CCMP Cabot Microelectronics Corp. $49.24 71.5% $1,211 $1,121 24.7x 19.9x 4.2x 20.7x 15.3x

MRD Macdermid Inc. $33.70 91.9% $1,021 $1,314 22.5x 19.5x 1.9x 14.0x 11.1x

ARJ Arch Chemicals Inc. $23.65 90.4% $532 $656 37.0x 24.4x 0.7x 23.0x 7.8x

High 37.0x 24.4x 4.2x 23.0x 15.3x

Mean 26.0x 20.4x 2.2x 19.3x 11.1x

Median 24.7x 19.9x 1.9x 20.0x 10.9x

Low 20.6x 17.5x 0.7x 14.0x 7.8x

P/E Multiples

P/E Multiples

P/E Multiples

P/E Multiples

March 2004



Paints & Coatings Stock Price % of 52 Market Company Company Value/


PPG Ppg Industries Inc. $62.74 97.1% $10,661 $12,119 17.4x 14.4x 1.4x 12.4x 8.8x


SHW Sherwin-Williams Co. $34.04 94.8% $4,962 $5,651 15.3x 14.0x 1.1x 10.3x 8.5x

VAL Valspar Corp. $48.68 97.8% $2,465 $3,310 17.3x 15.3x 1.5x 13.3x 10.9x

RPM Rpm International Inc. $15.82 93.3% $1,830 $2,512 13.3x 11.9x 1.2x 11.4x 9.0x

FOE Ferro Corp. $24.50 88.7% $1,011 $1,542 38.3x 20.6x 1.0x 19.9x 8.2x

High 38.3x 20.6x 1.9x 19.9x 10.9x

Mean 21.1x 16.1x 1.3x 14.4x 9.4x

Median 17.3x 14.8x 1.3x 12.9x 8.9x

Low 13.3x 11.9x 1.0x 10.3x 8.2x


Plastic Additives Stock Price % of 52 Market Company Company Value/


AKZOY Akzo Nobel Nv -Adr $35.28 88.8% $20,159 $23,316 12.1x 12.3x 1.5x 16.7x 10.4x


CYT Cytec Industries Inc. $37.29 95.7% $1,456 $1,647 16.1x 14.5x 1.1x 11.4x 7.0x

GLK Great Lakes Chemical Corp. $26.20 93.6% $1,326 $1,597 NM 27.9x 1.1x 28.9x 11.1x

ALB Albemarle Corp. $29.97 97.5% $1,233 $1,439 20.1x 17.2x 1.4x 14.7x 8.0x

FOE Ferro Corp. $24.50 88.7% $1,011 $1,542 38.3x 20.6x 1.0x 19.9x 8.2x

CK Crompton Corp. $6.55 83.5% $729 $1,465 NM 13.4x 0.6x 11.7x 5.5x

High 38.3x 27.9x 1.5x 28.9x 11.1x

Mean 20.9x 17.3x 1.1x 16.4x 8.3x

Median 18.1x 15.0x 1.1x 14.7x 8.0x

Low 12.1x 12.3x 0.6x 11.4x 5.5x


Water Treatment Chemicals Stock Price % of 52 Market Company Company Value/



ASH Ashland Inc. $41.74 90.3% $2,864 $4,255 11.8x 10.1x 0.6x NM NM

GLK Great Lakes Chemical Corp. $26.20 93.6% $1,326 $1,597 NM 27.9x 1.1x 28.9x 11.1x

ARJ Arch Chemicals Inc. $23.65 90.4% $532 $656 37.0x 24.4x 0.7x 23.0x 7.8x

High 37.0x 27.9x 1.3x 28.9x 11.1x

Mean 22.3x 19.3x 0.9x 21.1x 8.9x

Median 18.1x 19.7x 0.9x 23.0x 7.8x

Low 11.8x 10.1x 0.6x 11.5x 7.7x


Other Specialties Stock Price % of 52 Market Company Company Value/


EC Engelhard Corp $30.30 99.1% $3,801 $4,201 16.9x 16.1x 1.2x 15.5x 10.6x

IFF Intl Flavors & Fragrances $33.61 93.7% $3,148 $4,096 16.0x 14.6x 2.2x 12.7x 10.1x

LZ Lubrizol Corp. $31.06 90.3% $1,601 $1,833 15.2x 13.6x 0.9x 10.1x 6.5x

HPC Hercules Inc. $11.96 90.6% $1,327 $2,478 16.2x 12.6x 1.4x 9.4x 6.8x

OMG Om Group Inc. $24.77 73.9% $702 $1,119 29.1x 15.5x 0.2x 18.8x 9.1x

EY Ethyl Corp. $21.28 86.1% $357 $556 16.4x 15.8x 0.8x 12.6x 5.8x

KWR Quaker Chemical Corp. $27.20 88.5% $260 $300 17.7x 14.9x 0.9x 12.0x 9.1x

OMN Omnova Solutions Inc. $4.56 84.4% $182 $378 NM 16.3x 0.6x NM 12.9x

High 29.1x 16.3x 2.2x 18.8x 12.9x

Mean 18.2x 14.9x 1.0x 13.0x 8.9x

Median 16.4x 15.2x 0.9x 12.6x 9.1x

Low 15.2x 12.6x 0.2x 9.4x 5.8x

P/E Multiples

P/E Multiples

P/E Multiples

P/E Multiples

A P P E N D I X I I, CONTINUED

March 2004


��A U T H O R B I O G R A P H I E S

Robert D. Frost, PrincipalBob Frost is a Principal and a member of the Middle Market Mergers & AcquisitionsGroup at Piper Jaffray.

Prior to joining Piper Jaffray, Frost spent seven years in public accounting with Deloitte &Touche LLP providing accounting, auditing, financial reporting and mergers andacquisitions support services.

Frost graduated from the University of Nebraska with a Bachelor of Science degree inaccounting and received a master of business administration degree from the University ofPennsylvania's Wharton School of Business. He is also a licensed Certified PublicAccountant.

M. Shane McDaniel, AssociateShane McDaniel is an Associate and a member of the Middle Market Mergers &Acquisitions Group at Piper Jaffray. With extensive business valuation experience,McDaniel has been involved in assignments ranging in a wide variety of industries.Notably, he has developed a specialization in the Printing/Publishing, Plastics and SpecialtyChemical industries.

Prior to joining Piper Jaffray, McDaniel helped to establish and work along side theprincipals of Billow Butler & Company, a boutique Chicago M&A advisory firm with afocus on lower middle-market private company sales transactions. Prior to that, he was anAssociate at a leading national investment bank now part of Solomon Smith Barney.McDaniel began his professional career through his role as a Senior Consultant withArthur Andersen's Corporate Finance Group. With nine years of total mergers andacquisitions and financial consulting experience, he has spent the past seven years advisingand marketing private businesses in exclusive sell-side assignments.

McDaniel holds a Bachelor of Arts degree in Economics and Finance from the Universityof Illinois-Urbana/Champaign and a master of business administration degree withconcentrations in Finance and Strategic Management from The University of Chicago.

Scott T. Hartman, AnalystScott Hartman is an Analyst and a member of the Middle Market Mergers & AcquisitionsGroup at Piper Jaffray. He is responsible for performing quantitative analysis, financialmodeling and industry and company research. His transaction experience includesexclusive sale assignments, leveraged buyouts and fairness opinions.

Hartman holds a Bachelor of Business Administration degree in Finance, Operations andManagement from the University of Wisconsin–Madison.

Piper Jaffray is known in the M&A marketplace for providing insightful and timely analysis on M&A activity. As wecontinually strive to develop our knowledge and expertise in the industries in which we focus, we regularly publishinformative and technical articles and reports on M&A topics in the sectors we cover.

M&A Insights

M&A MonitorThe M&A Monitor is published every two weeks and features a variety of middle market M&A industry information,including industry and transaction multiples, public company premiums, and buyout fundraising and financingstatistics. Each issue features an M&A topic-related feature article and a highlighted transaction.

The WrapThe Wrap is a monthly e-newsletter that covers topics related to current M&A activity in the packaging industry.

Visit our Web site at—www.piperjaffray.com/ma—view a summary of the above listed products, request a copy orsubscribe to our distribution list. Please contact Cynthia Zebro at [email protected] or 612 303-5685 forcomments or questions.

P I P E R J A F F R A Y M & A R E P O R T I N D E X

- Valuations in the Specialty Chemical Industry- Mergers & Acquisitions Value Drivers for

Companies in the Packaging Industry- Middle Market M&A Outlook- Packaging Industry Valuation Considerations:

Capital Expenditures- Security & Safety Products & Services

Industry Overview- Specialty Chemical Industry Overview- Caps and Closures: A Mergers &

Acquisitions Review- U.S. Leveraged Buyout Market from 1980-2002- Valuations in the Packaging Industry- European Food Industry- The Effect of an Acquisition on Earnings Per

Share-Accretion/Dilution Analysis- Packaging Industry Public Acquirers—Earnings per

Share Accretion/Dilution Considerations- Mergers & Acquisitions—Value Drivers for

Companies in the Packaging Industry- Mergers & Acquisitions in the Packaging

Industry—2002 Year in Review

- Tax-Free Acquisitions- Trends in Acquisition Consideration- UK Orphan Companies- Industrial Distribution- Private Equity Survey- Endangered Species- Taxable Sales of C Corporations- Housewares and Household Products- Taxable Sales of S Corporations- Construction Materials Industry Update- Plastics: Consolidating the Injection Molding Industry- Putting the Collar on Stock Deals- Die-Casting Industry Report- What About a Dutch Auction?- Mezzanine Financing Demystified- Mining Higher Aggregate Company Values- Make Your Cash Flow Sing, Your Stock Will Dance- Leveraged Recapitalization: Financing Tools for

Financial Buyers- The Furor Over Purchase/Pooling

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