CONTRACT & TOLL MANUFACTURING from distributors . Those deliveries can be disrupted . In the case of a force majeure declaration , not having a contract can be a problem .” Keith Edwards , project manager of external manufacturing at Dow , added that the complications to scheduling trials and pilot projects is part of a larger challenge . “ For our organisation and for many others , bringing new tollers on line is taking longer . The entire evaluation process is longer .” Once the qualification and evaluation process is complete , the advance scheduling continues , Edwards explained . “ We try to stage raw materials at a warehouse near the toller and will typically work as much as six months out .” Coordination in scheduling is part of the larger collaboration between toll operations and their clients . That relationship extends from logistics and other tactical aspects all the way to strategic commitments , such as contractual language .
What partners are
“ True partners are just that : partners ,” said Walter . “ There is trust . Not only are the partners trying to protect themselves on paper , they are also trying to protect the relationship . In some cases with our partners , the terms and conditions of our contracts have actually improved over time as we come to trust each other more .” The ideal case is where “ we view partners ’ facilities as plants that we just happen not to own , but we treat them as internal and they communicate with us as internal ,” Walter added . And communication has to start in the initial evaluation process , well before any formal operating relationship . “ When I am looking for a toll manufacturer , a long list of capabilities is just clutter ,” said Edwards . “ I don ’ t want to see a list of 50 different chemicals you may have worked with five years ago . I don ’ t want to know what you can do ; I want to know what you do well . Don ’ t be a jack of all trades and master of none .”
At a separate panel , Bob Girton , a partner at Edgewater Capital Partners , and Kevin Yttre , president and managing director of Grace Matthews , offered their insight on unpacking private company valuation with respect to speciality chemicals companies . Many of these are also tollers . Not surprisingly , the COVID-19 pandemic had a chilling effect on deals . “ On the front end of the pandemic there was an aggregation of unknowns ,” said Girton . “ There were many deals , some of ours included , that were just weeks from closing and did not make it across the finish line because no one knew how to quantify all the new potential risks . “ That said , it took a few months , late summer 2020 , for market participants to digest the new dynamic . Today , there are still many unknowns and volatility , but we at least have some scenarios and frameworks in order to assess potential outcomes .” Currently , however , Girton could say that “ COVID may colour or alter the approach or timing of one deal or another , but at this point , I don ’ t believe it would on its own preclude us from making an investment . As a result , our primary focus remains the evaluation of the organisation and its potential .” One of the essential questions for companies in which Edgewater considers investing is around margin , particularly gross margins . “ We have always focused on what drives the buying decision of the prospect company ’ s customer . How is the prospect company ’ s offering differentiated ? How valuable is that offering relative to alternatives ? How much pricing power do they have ?” Edgewater has also increased its consideration of raw material availability and redundancy and
Girton – Market clearer now after COVID downturn overall supply chain resilience . “ One notable in today ’ s climate is that we are seeing many businesses that are linked directionally to the price of a commodity ,” said Girton . “ The organisation may be positioned as differentiated and margins might lead to that conclusion , but in our perspective , and more importantly in the eyes of their customers , they really are not . The result is that , if an investor is wrong on the long-term margin potential , there is not just the potential of overpaying , but also calibrating the balance sheet with too much leverage .”
Relative buying power
Girton also differentiated the investment and tools his firm has at its disposal in comparison to those of large public chemical companies . A large strategic is likely to have more buying power in aggregate , so arguing that a target company has just been buying poorly probably does not fit Edgewater ’ s model . “ We try to be careful about investment with a mentality that there must be mispricing . There is usually a reason for the dynamic being the way it is , and it would be arrogant
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