US – Brenntag, a global market leader in chemical and ingredient distribution, has confirmed the possibilities of a mega-merger in global chemical distribution after it held preliminary discussions with Univar Solutions over a potential acquisition.

Although the two giants remain guarded about the details of exploring this possible takeover deal, Univar Solutions confirmed that it has received a preliminary indication of interest from Brenntag regarding a potential transaction.

“The company does not intend to make any additional comments regarding this matter unless and until it is appropriate to do so,” a Univar Solutions statement says.

This comes after Brenntag chief executive Christian Kohlpain had earlier hinted the company was eyeing mergers and acquisitions, looking to double annual spending in this direction.

“Brenntag sees strategic mergers and acquisitions as an enabler of future growth and thus will double the annual planned M&A spend to around €400 to €500 million (US$419 to US$524 million),” he said earlier this month as part of the highlighting of Brenntag’s growth strategy plans and targets for 2026.

The German ingredient giant said its acquisition strategy will be focused on five key pillars, such as accelerating growth in Life Sciences globally, enhancing strategic capabilities and market positions, expanding positions in emerging markets in both divisions, filling white spots to complement the existing portfolio and improving tech capabilities that enable efficiency gains.

The strategy marks “the next chapter of transformation” and clarified its intention to “shape the future of its industry.”

In its Q3 results, Brenntag posted a higher-than-expected third-quarter profit on Wednesday, saying it was able to balance European and global supply chains as rising energy costs affected the continent.

The group, whose services include storing large-scale quantities of chemicals and repackaging them into smaller quantities, had quarterly operating earnings before interests, taxes, depreciation, and amortization (EBITDA) rise of 34% to 460 million euros (US$463 million).

Brenntag affirmed an expectation to reach the upper range of its 2022 guidance of 1.75 billion to 1.85 billion euros in operating EBITDA.

At the beginning of November, Univar Solutions also reported its third-quarter 2022 highlights, which showed a substantial net income of US$130 million, 54% higher than the US$84.4 million reported in the prior year.

Univar Solutions – which changed its name to Univar Solutions following the acquisition of Nexeo Solutions in 2019 – also reported net sales of US$3 billion.

The announcement of the potential takeover has sparked a lot of debate in the market considering that the merger appears viable from an antitrust standpoint in a highly fragmented market.

“While Brenntag and Univar are respectively the #1 and #2 global chemical distributors, the industry remains highly fragmented, meaning combined market shares appear manageable in our view,” said Joshua Spector, Americas chemicals analyst at UBS, in a research note.

The UBS analyst added that only around 10% of total chemical sales go through distributors, and within this slice of the pie, a combined Brenntag/Univar would represent only 8% of global chemical distribution sales.

Fermium Research analyst Frank Mitsch pointed to Univar’s improving prospects after integrating the Nexeo acquisition and completing a challenging SAP enterprise software implementation, along with its limited exposure to more troubled areas outside the Americas with less than 20% of sales in EMEA and Asia, as attractive features from an investment perspective.

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