ILMA Compoundings September 2017 - 17
expects the transaction to be immediately accretive to earnings in the first year. Moreover, Quaker's management believes that within three years, the combined companies will
realize an additional $45 million in incremental EBITDA,
achieved mainly through economies of scale that include
cross-selling opportunities, optimization of manufacturing
and freight/warehouse operations, raw material purchasing
benefits and workforce integration, among other measures.
Another approach to gaining scale through acquisitions is
occurring in the distribution sector. "Bolt-on" transactions,
in which a larger parent buys a smaller company with a
strong strategic fit, are becoming common, with a number
of active acquirers in the lubricants industry, including
Fuchs Petrolube, Quaker, PetroChoice, Brenntag and RelaDyne. Bolt-on deals work because the target company gains
access to the parent's management and financial resources,
and the parent gains the target's loyal customers and the
operating leverage that allows it to spread fixed costs across a
larger customer base.
A prominent example of a company actively engaged in
bolt-on acquisitions that are rolled up into a larger enterprise
is RelaDyne. A value-added distributor of specialty lubricants, fuels, diesel exhaust fluids and industrial reliability
services, RelaDyne is a relatively new company. It was formed
in 2010 from the merger of four well-established lubricants
companies. Initially backed by the private equity fund AEA
Investors, RelaDyne is now majority owned by Audax Private
Equity, which has continued to back an aggressive acquisition
program with the goal of building a national distribution
business focused on excellent customer service and ensuring
the reliability of customers' equipment. RelaDyne has made
14 acquisitions in the lubricants and fuels market since 2011,
and in June announced No. 15 - the acquisition of Western
Marketing. Although most of these transactions have been
relatively small, each transaction has strategically expanded the
company's geographic reach, with an emphasis on a central
corridor running from the Gulf Coast to the Upper Midwest,
a heavily industrialized area that constitutes about 50 percent
of the U.S. lubricants market. The company is also expanding
into Western states and has established a particularly strong
presence in Utah.
Looking ahead, we expect a continued, robust environment for M&A in lubricants. The roll-back of industry
regulations and the implementation of large-scale infrastructure and re-industrialization plans by the Trump administration could enhance the prospects for lubricants companies,
and by extension, the value of companies that are brought
to market. Interest rates are relatively low and corporate
balance sheets are relatively flush with cash. An index of the
values of publicly traded chemicals companies tracked by
Grace Matthews recently hit a record high. All this is good
news if you're an owner of a private lubricant company and
are considering selling your business, particularly if you have
attracted the attention of one of the large strategic buyers.
Scharff is managing director at Grace Matthews and has
over 20 years of chemical investment banking experience.
He is recognized as a leader in the industry and has been
quoted in various publications, including CoatingsTech,
Middle Market Growth and IHS Chemical Week. Scharff received a
bachelor's degree in economics from the University of Wisconsin-Madison.
He is a member of the Wisconsin Chapter of the Association for Corporate
Growth and previously served in the U.S. Marine Corps.