2014-15 Annual Review

Applying CD&R’s deep chemical industry insights with the Firm’s distribution expertise to create a powerful, global chemicals distributor

By the time of CD&R Fund VIII’s investment in Univar, CD&R had been scouting for distribution opportunities in the chemicals space for a decade. After the company filed for an IPO in 2010, CD&R reacted quickly and proposed an attractive transaction that allowed partial liquidity for shareholders and strategic and financial support for the company’s growth plans.

Univar is a leading global chemical distributor and provider of innovative value-added services with a global scale and a resilient

business platform. CD&R believes a significant opportunity exists to improve the company’s profitability, which lags its closest competitor despite a superior market position in key geographies. Led by Operating Advisor Bill Stavropoulos, who as the former Chairman of Dow Chemical (“Dow”) brings deep supplier relationships and industry acumen, CD&R has helped identify cost, productivity and growth initiatives to leverage scale, achieve process excellence and pursue strategic acquisitions in core markets and key, high-growth verticals such as oil, gas & mining and water treatment.

While progress to date has been positive, growth was challenged in the second half of 2012 and the first half of 2013 due to slow industrial

production growth, deflationary trends in several key products and investments to build stronger capabilities in key growth verticals. Due in large part to proactive efforts by management, financial performance rebounded in the second half of 2013 and continued in 2014. Entering 2015, Univar faces headwinds from its exposure to the oil & gas end market (approximately 17% of net sales) and movements in global foreign exchange rates. In response, management has implemented a comprehensive productivity program and continues to focus on driving commercial excellence. CD&R believes Univar’s long term outlook remains positive and significant value creating opportunities remain.

Company Profile

Univar is a leading global chemical distributor and provider of innovative value-added services to a broad array of end-markets, holding number one market positions in the United States, Canada and Mexico and the number two position across the globe. The majority of Univar’s products are commodities the company buys in bulk, then processes, blends and repacks to meet the diverse requirements of the industries it serves. Univar offers a variety of value-added services, including specialty product blending, automated tank monitoring and refill chemical waste management and digitally-enabled marketing and sales. The company built its loyal customer base through its ability to offer access to producers and products that are not generally available to small purchasers (or not available in small enough sizes), as well as the benefits of purchasing leverage and a comprehensive “one-stop shop” product offering.

The company benefits from strong, mutually beneficial relationships with thousands of producers worldwide, including BASF, Dow Chemical, Dow Corning, DuPont, Eastman Chemical, ExxonMobil Chemical, LyondellBasell and Formosa Chemicals. Univar enables its suppliers to reduce sales administration and logistics expenses associated with reaching small customers and provides access to regional markets that are sub-scale.

Transaction Background

After the company’s existing owners considered a plan to take Univar public in early 2010, CD&R Fund VIII purchased a large interest in the company and installed Operating Advisor and former Dow chairman, Bill Stavropoulos, as chairman of Univar. He was particularly familiar with the business, as Dow once owned a minority equity interest in Univar.

In November and December 2010, CD&R Fund VIII and CD&R-managed LP co-investment vehicles collectively invested $805.4 million for a 41% equity interest in Univar as part of a broader recapitalization transaction which included Univar’s acquisition of Basic Chemical Solutions. CVC Capital Partners, Goldman Sachs, Parcom, and the Univar management team owned the remaining equity.

Value-Building Initiatives

The company and CD&R have identified several operating improvement opportunities to enhance profitability, including:

• Cost reduction and productivity improvement. Univar is enhancing its procurement organization to reduce sourcing costs while also implementing robust inventory planning and stocking systems.

• The Company is also in the process of centralizing, improving and consolidating indirect-spend, including third-party transportation. These actions will reduce costs, improve reliability and improve the level of service Univar offers to its customers. Univar is also undertaking a commercial realignment of its EMEA business with increased focus on key growth markets, local knowledge and local profitability, as well as a cost reduction program in its oil & gas business.
• Strategic pricing. Univar has developed proprietary, strategic, market-based pricing capabilities based on product-specific supply and demand factors. The initiative has resulted in improved price realization as well as speed of price pass through in the regions where the tools have been deployed to date. As deployment continues, the company expects improved pricing performance and margin expansion across the business.

• Sales force effectiveness/customer mix management. Univar has taken several steps to re-invigorate its sales force, including reorganizing its structure and adopting an incentive compensation system to better align the organization with identified growth opportunities. The company also believes it has a significant opportunity to improve its sales force effectiveness by targeting smaller, higher margin customers and enabling sales representatives to spend more of their time on selling versus supporting activities.
• Services growth. Univar will continue to drive growth in its high margin, value-added service offerings, including MiniBulk, ChemCare and ChemPoint.com. These businesses are key differentiators for Univar relative to its competitors and enhance the company’s profitability and growth prospects.

• Industry consolidation. The acquisition/consolidation opportunity is attractive due to the fragmentation of the market and the ability to develop cross-regional capabilities, gain critical mass/scale, increase network density and broaden product offerings. Univar’s management team has identified several near-term tuck-in acquisition opportunities.

Looking Forward

Key near-term focus areas for the company include the following:

• Reducing cost and increasing productivity, particularly in the oil, gas & mining business
• Executing on the strategic pricing and sales force efficiency initiatives

• Executing commercial excellence initiatives
• Pursuing attractive acquisition opportunities