Potential Value Unlock Through a Segment Sale at $ECVT

This specialty chemicals company provides customized catalysts for various industrial applications along with sulfuric acid recycling services. A few months ago, the company announced a strategic review, aiming to sell its Advanced Materials & Catalysts segment, which accounts for about a third of its sales and EBITDA.

The combined company currently trades at 8.5x LTM EBITDA, which seems cheap for a business with a leading position in its core segment (#1 or #2).

If the catalysts business is sold at a multiple of 7-8x EBITDA, based on normalized EBITDA of $80-85M, the remaining business could be trading at c. 6.5x LTM EBITDA compared to somewhat comparable peers trading well above 10x EBITDA.

If the sale happens near those valuation levels, this could work out nicely.

Here’s what management said on the latest earnings call about the company's undervaluation:

“Well, I think obviously, with the announcement yesterday of the strategic review, the Board and the management team—and I think we've been quite vocal about this over the past 3 years—do not feel that the stock price is reflective of the quality of the 2 businesses, both Advanced Materials and Catalysts, and Ecoservices. So we're 100% focused on increasing shareholder value there.”

Notably, with the announcement of the strategic review, the head of the Advanced Materials segment received a retention bonus equal to 1.5x their salary in the event of a change of control e.g. interests are well-aligned.

Keep in mind, these are just back-of-the-envelope calculations and I’m no expert in this space, so take this with a grain of salt.

However, I’d love to hear from those who are more experienced or have analyzed this company before. I am sure there is more to the story than I can see. Looking forward to your comments.

For additional context, there’s a great VIC pitch from 2022 that I’d recommend checking out.
https://t.co/QdL1sgzEFB