What drives value in chemicals industry carve-out strategy

Leaders in the US chemicals industry considering a strategic divestment can increase value in three areas of carve-out strategy.

In brief

• Unique chemicals industry carve-out strategies may require detailed disentangling of complex, commingled assets and reworking of global distribution networks.
• Delays in obtaining permits and licenses globally can erode chemicals industry transaction value.
• EY-Parthenon teams have helped chemicals industry leaders manage carve-outs and create value.

US-based companies in the chemicals industry, under increasing pressure from activist investors to focus on competitive advantage, need to take steps to protect value in the carve-out of non-core assets. 

Across industries, 35% of leaders expect to conduct divestments, spin-offs or IPOs this year, according to the EY-Parthenon CEO Outlook Survey conducted in March and April 2025. In the complex chemicals industry, following decades of industry consolidation, activist investors have been demanding that companies enhance their portfolio by shedding non-core assets. This coincides with a trough in global chemicals demand exacerbated by supply increases in Asia and the Middle East. These factors are leading to slower demand for US exports.

Chemicals company leaders need a divestment strategy to manage industry-specific carve-out complexity and drive value.

Ill-planned chemicals industry carve-outs can result in significant delays to get to a deal close, which is a concern for all buyers but especially for private equity buyers. Even when workarounds are used to accelerate closing, this leads to additional one-time costs to service the workaround and often delays full realization of the deal value. These delays are often attributable to disentangling the carved-out business, which often has complex manufacturing, distribution and operational entanglements that can cause costly, unexpected delays in carving out these intertwined chemicals assets. Delays of two to six months can erode 2% to 5% of deal value, or $20m to $50m for every $1b in deal value, and significantly impact the deal thesis, according to EY-Parthenon analysis.

In addition to the typical carve-out challenges related to people, IT systems and other transaction considerations that need to be carefully managed, there are three challenging areas where sellers of chemicals assets need to focus:

• Commingled manufacturing that is difficult to disentangle
• Global trade flows of specialty chemicals that may create unique considerations
• Operating permits and product regulatory risk

Companies can tackle chemicals industry carve-out challenges by clarifying issues, highlighting solutions and getting guidance on the best next steps.

1. Together forever? The carve-out challenges for commingled chemicals manufacturing sites

Many chemicals manufacturing operations are highly integrated across multiple stages — from raw materials to finished product. This is especially true for large chemicals companies, making it a challenge to carve up sites and assets.

As a result, this often requires structuring a complex series of multi-decade agreements between buyer and seller that control risk. One scenario might be that the buyer acquires and operates assets on the site as a “tenant,” while the seller continues to provide site and ancillary services as a “landlord.” Another option might entail ownership transfer while the seller continues to operate the assets.

In one example, a US chemicals manufacturer sought to carve out its resins assets to focus on core assets. Due to interdependent operations, the carve-out presented challenges such as overlapping labor responsibilities, the need for seamless post-sale manufacturing for the buyer and the urgency to draft clear operating agreements to facilitate the transaction. EY-Parthenon teams enabled a timely transaction close by helping the seller to develop a robust operating agreement with clear buyer and seller roles and responsibilities for a seamless transition, including the seller’s continued operation of the manufacturing assets after ownership transferred to the buyer at close.

Figure 1: Commingled manufacturing for commodity chemicals

Source: EY-Parthenon analysis

In this illustration, were the chemicals company to carve out a certain set of conversion units, it would need to establish operating agreements between seller and buyer to govern the sale of intermediates and the provision of essential site services that enable continued operations by the buyer. Furthermore, if intermediates are produced by one party and sold to the other party, additional long-term supply agreements would be required.

Carving out commingled chemicals industry assets should include these actions:

• Conduct a detailed review to identify operating interdependencies across key areas such as raw materials, production, storage and site services. For example, assess how feedstocks and intermediates are transported through pipelines and across processing units. A company might decide to carve out one downstream unit, creating commingled operations. (See Figure 1.)
• Understand end-to-end cross-functional process for source-to-pay, manufacture-to-deliver and order-to-cash, along with any engineering and technology dependencies. Map out key day-to-day interactions with the appropriate IT strategy to facilitate business continuity and minimal operational disruption on Day 1.
• Evaluate supply and service needs for each value stream and site service on the commingled site. Sellers should assess the need for supply agreements and site services for each unit. Site services may include utilities (e.g., electricity, natural gas, steam, water and air), specific services (e.g., maintenance, engineering and quality services) and general site landlord services (e.g., site administration, site logistics and site security).

2. It’s a small world after all: how to address global distribution challenges for a specialty chemical carve-out

In the case of specialty chemicals, specific finished products typically are manufactured at a single location and shipped globally, creating complex supply chain, logistics and distribution management.

A product may move from a specialty chemical plant to several third-party distribution centers. A product also could be exported to different countries and held at distribution centers in the importing country before final delivery to the end customer. A variety of incoterms desired by customers leads to producers being exporter-of-record or importer-of-record across the globe, a situation exacerbated by a shifting tariff landscape.

Figure 2: Simplified product flow from plants to multiple global destinations

Source: EY-Parthenon analysis

3. Don’t forget the stamp: regulatory and permit risk for chemicals industry carve-outs

Being unprepared for regulatory risk, especially given the varying local and global timeframes for obtaining permits and licenses, can cause significant delays and erode transaction value.

To mitigate this, it is important to identify jurisdictions with long lead times for operational and product-related permits, licenses and registrations. Sellers and/or buyers should engage early with regulatory bodies. This means working with cross-functional leaders along with local legal counsel to anticipate and plan for possible workarounds.

EY-Parthenon teams helped a leading US chemicals manufacturer face the challenge of divesting a specialty chemicals business to a private equity buyer. The business being carved out was in a country with stringent jurisdictional requirements for transferring operating licenses. The private equity buyer desired a speedy transaction close to begin improving the business. Robust workarounds, including toll and contract manufacturing, helped maintain business continuity and achieve a timely deal close. This gave the buyer ample time to attain permits and licenses in countries with exceedingly long regulatory timelines.

Addressing operational and product regulatory complexities in a chemical industry carve-out is critical. Key actions may include:

• Conducting cross-functional workshops with advisors, which can result in a more thorough inventory of all required operating permits, licenses and registrations. This can help identify critical items and avoid unexpected delays.
• Delaying the transfer of assets and people while enabling the buyer to assume full control over raw material sourcing and production planning.
• Providing ad hoc or consultation support to help the buyer gain institutional knowledge needed to obtain required permits and licenses.

How to design chemicals industry carve-out governance

To accelerate deal timelines and preserve value, companies must assess financial implications of multiple carve-out scenarios and navigate all aspects of operational separation to speed a deal’s timing to close.

Chemicals companies can increase carve-out value by establishing a governance structure that maintains the right level of focus on functional separation while elevating other critical cross-functional considerations such as people, technology, legal entity and contract to effectively mitigate deal closing risk. (See Figure 3.)

Figure 3: Governance of complex chemicals carve-outs

Source: EY-Parthenon analysis

What’s next for chemicals industry carve-outs

The key to chemicals industry carve-outs lies in a clear separation strategy. To avoid erosion of deal value, a chemicals industry carve-out strategy should, early on, address challenges that require a long lead time. It should present appropriate workarounds as part of a comprehensive separation plan. This proactive approach can mitigate potential delays and preserve deal value in the complex chemicals industry.