Industry Description
The chemical wholesaling industry in the U.S. comprises wholesale distributors of industrial chemicals, compressed gases, chemical additives, and synthetic rubber products to manufacturers, construction firms, and mining operations (NAICS 42469). The industry excludes the wholesale distribution of agricultural chemicals, medicinal compounds, paints, varnishes, fireworks, and plastic materials.
The following are some basic characteristics of the chemical wholesaling industry:
- Chemical wholesaling industry has a combined revenue of $203.1 billion, with a growth rate of 1.1% in 2019-2024
- There are approximately 9,600 businesses as of 2019
- The chemical wholesaling industry employs approximately 197,200 people
Industry Trends
The chemical wholesaling industry is highly fragmented and has low levels of market share concentration, with the top three industry operators comprising approximately 10% of industry revenue in 2019. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) volatility of crude oil prices, (ii) changes in the Industrial Production Index, and (iii) increased regulatory requirements. Each of these is described in further detail below.
Crude oil, which is a key input in many chemical products, has volatile prices. With the steep decline in the price of oil in 2014, the rebound in 2023 saw costs rise for chemical wholesalers. Similar changes in prices of this category accounted for a reported 1.0% decline in the US chemical output in 2023. This sensitivity of oil and derivative prices has changed the cost structures of enterprises and pricing with downstream commodities accordingly.
The Industrial Production Index (IPI) is an indicator of overall economic performance. The IPI saw moderate increases of 1% and 2.3% in 2022 and 2023 respectively, consistent with rising chemical demand from manufacturing and construction. According to the American Chemistry Council, while essential chemical production fell by 2.5% in 2023, sectors like consumer products continued to show a 4.2% increase on the back of solid spending. This underlines how specific segments within the industry have remained resilient.
Regulatory requirements play an essential role in the industry’s dynamics. The Chemical Safety for the 21st Century Act of 2016 heightened reporting obligations on chemical distributors, adding to their cost of compliance. Additional sustainability mandates further increase these by recent legislation, such as the Inflation Reduction Act, which incentivizes low-emission technologies. Compliance has driven up operational expenses, accounting for an estimated 4% of industry costs in 2023, making regulatory adherence a pressing challenge for businesses.
The chemical wholesaling industry in the U.S. has been influenced by external factors such as volatile raw material prices, economic fluctuation, and regulatory pressures. Increased industry demands and broader economic trends make agility and innovation necessary for industry players. Sustainable practices will lead to resiliency and adaptation to such demand increases and broad economic trends.
Key Performance Metrics
In evaluating the chemical wholesaling industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Compliance rate
- Incident rate
- Inventory turnover ratio
- Lead time
- Order fulfillment rate
- Product mix
Industry Organizations & Publications
The following organizations publish useful information:
- Alliance for Chemical Distribution (ACD)
- Chemicals in Motion
- Chemical Week
- Independent Commodity Intelligence Services (ICIS)
Guideline Information: Private Purchase Transactions
Most chemical wholesaling companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held chemical wholesaling companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of chemical wholesaling companies:
- Revenue multiples between 0.3 and 1.7 times
- Gross Profit multiples between 1.0 and 5.5 times
- EBITDA multiples between 4.6 and 10.9 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most chemical wholesaling companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The three largest publicly traded U.S. chemical wholesaling companies ranked by market capitalization are:
- Eastman Chemical Company (EMN) – $10.8 billion market capitalization
- Ashland Inc. (ASH) – $3.4 billion market capitalization
- Hawkins Inc. (HWKN) – $2.4 billion market capitalization
The Price-to-Earnings (P/E) ratios of these three companies range between 12.5 times and 29.2 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Chemical wholesaling companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.