Perspectives

Chris Cerimele - Managing Partner, Balmoral Advisors

Chris Cerimele

Managing Partner

Chris Cerimele

Managing Partner

Last week in Nashville, we attended the 2024 SOCMA Show, a premier event that brought together leading manufacturers, buyers, suppliers, and experts from across the specialty and fine chemicals sector.  This annual gathering provides an excellent forum for us to compare notes on the state of the market and evolving industry dynamics. Reflecting on the event, we’ve identified several critical learnings that have implications for the financing and M&A markets.

There is cautious optimism that 2024 will be a better year than 2023. Starting in 2022, the industry saw an uptick in performance due to the recovery from COVID. For many, a portion of this higher demand was artificial in the sense that it was a catch-up from prior softness. In 2023, there was hope for improvement, but it did not materialize. The year was softer but many of the factors contributing to the decline have eased and 2024 is off to an unexpectedly strong start. There was a feeling of cautious optimism at the Show, driven by the following factors:

  • Demand in December and January was much stronger than expected.
  • Inventory de-stocking has more or less fully played out.
  • There is easing pressure on the labor market.
  • Customers are outsourcing more of their business to contract manufacturers. This is an indicator that demand is increasing and production capacity is tightening.
  • Purchase order activity is up, thus lead times are lengthening, resulting in longer revenue visibility.
  • The disruption of shipping in the Red Sea is adding to an onshoring trend. Companies, including Asian manufacturers, are increasingly looking at moving production to North and South America.

That said, optimism is tempered because the strength has only emerged recently.  In addition, there are still some headwinds and warning signs, such as the following:

  • Gridlock at the EPA continues to be a problem and is a drag on growth. The industry is pushing for change in Washington. The outcome of the Presidential election by itself is not expected to make a difference, it’s going to take a concerted lobbying effort to enact change. Success in these efforts will help improve performance by re-enabling new product innovation.
  • Leading US economic indicators still predict a recession in 2024, but the fact that we did not see one in 2023 suggests that there may be factors offsetting the normal predictive measures. It’s hard to call right now.

Overall, attendees at the Show are optimistic but want to see continued improvement before making any real predictions.

In addition, there was a general feeling among attendees that 2024 represents a return to “normal” financial performance.  Many companies saw wide swings in revenue and earnings during the onset and recovery from the pandemic.  Much of that “whiplash” has worked itself out, and while there are still exceptions, many companies believe their current earnings levels represent a return to fundamental performance.

Our observations are that if the positive trends continue in 2024, it could be a catalyst for an improved M&A market for both buyers and sellers. This could be the case even if the Fed delays rate reductions.  The Financing and M&A markets abhor volatility and uncertainty.  With more of a return to normal, sellers could receive higher valuations based on improved and more reliable earnings, while buyers would have greater confidence in the stability and growth of their acquisitions.

Discover how the insights from SOCMA can be strategically applied to navigate your unique challenges and goals in the Chemical and Materials market. Balmoral Advisors is here to guide you through evolving M&A landscapes and financing solutions, ensuring your growth and success in 2024 and beyond. Call us and let’s have a conversation. >>>

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