UNVR - Univar

[Deepdive]

UNVR sold off from the $31-32 range to $20 and the idea was written up on VIC.  It sounds like a nice safe recurring business that one can buy for high single digit FCF.  If they can integrate their acquisition of Nexeo well, then it is very interesting. 

 

Summary thesis

 

Recent market selloff combined with a weak Q3 for the company created the opportunity to invest in a quality compounder at fire-sale valuation multiples. Recent volatility in the shares distracted investors from the long-term opportunity created by the recently announced merger with Nexeo. We believe the shares offer c. 150% upside in a base case scenario over the next 2 years with minimal downside in a bear case scenario.

 

Business description and investment highlights

Following the merger with Nexeo (which should close in Q1-19), Univar will become the world’s largest chemical and specialty chemical distributor, followed by Brenntag. We believe chemical distribution is a fundamentally good business with numerous desirable characteristics and Univar in particular appears the most attractive company in the space:

 

Exposed to a secularly growing market

Market leader in most geographies in an otherwise fragmented market

High operating leverage

High return on invested capital

High barriers to entry

Whilst cyclical, it’s relatively resilient during recessions

Deploys capital very effectively in accretive acquisitions

Disintermediation is highly unlikely

 

 

[heth247]

Thanks for the idea. When was the VIC write up published? I am still unable to see it.

[walkie518]

market didn't like the quarter, down 4% today, maybe the market was expecting a lot more?

 

I'm not sure anything has changed here materially and it seems as though mgmt is still largely on track with synergies (reported $20m more than previously believed)

 

there has been gross margin and adj ebitda improvement, which should be the heart of the thesis...  the gem is certainly the US business as mgmt continues to find synergies and the new SAP ERP implementation will be a great tool for the sales team

 

should mgmt get to double digit adj ebitda margins, the company might be worth at least 30% more EV/EBITDA basis before assuming any growth to the top line?

 

what am I missing?

[ander]

I’m guessing weakness for second half and respective guide down probably weighing on stock - which may also have negative implications for next year.

[walkie518]

I’m guessing weakness for second half and respective guide down probably weighing on stock - which may also have negative implications for next year.

 

falling another ~3.4% today, no news to my knowledge

[Spekulatius]

So what’s the case, to buy this vs. Brenntag BNTGY / BNR. DE? I bought some BNTGY today. The business is surprisingly resilient, even during a time of economic distress like 2008/2009.

[Spekulatius]

So what’s the case, to buy this vs. Brenntag BNTGY / BNR. DE? I bought some BNTGY today. The business is surprisingly resilient, even during a time of economic distress like 2008/2009.

 

Bump for Brenntag BNTGY. I bought some during the selloff. While their revenue were down in the 10% range, their earnings were about flat. very resilient business and trading close to all time highs, but still not out outrageously expensive (PE~15-16). It’s better managed than Univar, imo.

[BG2008]

So what’s the case, to buy this vs. Brenntag BNTGY / BNR. DE? I bought some BNTGY today. The business is surprisingly resilient, even during a time of economic distress like 2008/2009.

 

Bump for Brenntag BNTGY. I bought some during the selloff. While their revenue were down in the 10% range, their earnings were about flat. very resilient business and trading close to all time highs, but still not out outrageously expensive (PE~15-16). It’s better managed than Univar, imo.

 

I agree that Brenntag is better managed.  But I think Univar is trading at a about 8-9.3x P/FCF with about 3.7x EBITDA of debt on it at the moment.  Give it 1-2 more years to integrate the Nexeo acquisition and paying down about 1x EBITDA of debt and you likely have a sub 3x EBITDA net debt and trading at 7-8x P/FCF.  I think Univar has more upside than Brenntag at these prices.  At the same price, I would want to own Brenntag.  I was able to pick up some at about 5-6 P/FCF (2022) and I hope that over time people view these companies in the same light as Pool Corporation and give it a 25-30x P/FCF mutliple.  Univar is messy right now and has more leverage.  It will be more volatile which I kind of view as a feature rather than a bug as it allows the more long term oriented investors to pick up more shares. 

 

I view Univar as the kind of businesses that Uber/Lyft, scooter rentals, etc aim to become while burning billions of dollars.  With Univar and Brenntag, they have already achieved route density and operate in an Oligopoly structure.  These guys should eat the lunch of the smaller mom and pops coming out of the crisis.   

 

From a pricing perspective, I can see a blue sky scenario where the market gives Univar a 25P/FCF multiple 2 years out when the financials are clean and leverage is lower and they print some organic growth, that could imply a potential $55 share price versus $18-19 today.  But the likely outcome is probably some mid point between $18 and $55 which is still a decent outcome. 

 

It is probably not a bad idea to own 50/50 Univar/Brenntag or a 35/65 Univar Brenntag or a 65/35 Univar Breentag.  These are attractive businesses. 

[Broeb22]

 

 

Bump for Brenntag BNTGY. I bought some during the selloff. While their revenue were down in the 10% range, their earnings were about flat. very resilient business and trading close to all time highs, but still not out outrageously expensive (PE~15-16). It’s better managed than Univar, imo.

   

 

From a pricing perspective, I can see a blue sky scenario where the market gives Univar a 25P/FCF multiple 2 years out when the financials are clean and leverage is lower and they print some organic growth, that could imply a potential $55 share price versus $18-19 today.  But the likely outcome is probably some mid point between $18 and $55 which is still a decent outcome. 

 

It is probably not a bad idea to own 50/50 Univar/Brenntag or a 35/65 Univar Brenntag or a 65/35 Univar Breentag.  These are attractive businesses.

 

Has Brenntag ever traded at 25x P/FCF? If the answer is no, why would the market suddenly apply that multiple to Univar?

 

Taking POOL as an example, I estimate they had $900 million of tangible invested capital and generated about $265 million in FCF for a ROIC approaching 30%.

 

Comparing that to UNVR, I estimate UNVR had $2.1 billion in tangible invested capital and generated about $250 million in FCF for an ROIC approaching 12%.

 

Similar math yields 15% ROIC for Brenntag.

 

Do you have a reason to believe that UNVR will be able to increase cash flows or reduce its capital intensivity in 2 years that would enable them to approach 30% ROIC?

 

[BG2008]

 

 

Bump for Brenntag BNTGY. I bought some during the selloff. While their revenue were down in the 10% range, their earnings were about flat. very resilient business and trading close to all time highs, but still not out outrageously expensive (PE~15-16). It’s better managed than Univar, imo.

   

 

From a pricing perspective, I can see a blue sky scenario where the market gives Univar a 25P/FCF multiple 2 years out when the financials are clean and leverage is lower and they print some organic growth, that could imply a potential $55 share price versus $18-19 today.  But the likely outcome is probably some mid point between $18 and $55 which is still a decent outcome. 

 

It is probably not a bad idea to own 50/50 Univar/Brenntag or a 35/65 Univar Brenntag or a 65/35 Univar Breentag.  These are attractive businesses.

 

Has Brenntag ever traded at 25x P/FCF? If the answer is no, why would the market suddenly apply that multiple to Univar?

 

Taking POOL as an example, I estimate they had $900 million of tangible invested capital and generated about $265 million in FCF for a ROIC approaching 30%.

 

Comparing that to UNVR, I estimate UNVR had $2.1 billion in tangible invested capital and generated about $250 million in FCF for an ROIC approaching 12%.

 

Similar math yields 15% ROIC for Brenntag.

 

Do you have a reason to believe that UNVR will be able to increase cash flows or reduce its capital intensivity in 2 years that would enable them to approach 30% ROIC?

 

I think your $250mm FCF is too low.  I think $350 going to $400mm is the correct figure in 2 years.  They are in the middle of integrating the Nexeo acquisition with additional synergy to extract.  They are also in the process of implementing their new ERP system.

 

15% ROIC for Breentag seems low, can you lay out your math for both?  Would like to compare notes on components of intangible, working capital, versus depreciable assets such as vehicle and PPE. 

 

I think having a view on whether ROIC increases or decreases over time is also helpful.  I am leaning towards increasing ROIC due to densification of route density due to 1) organic volume growth and 2) increased outsourcing of chemicals distribution. 

 

Also, it's important to look at annual maintenance cap ex which I believe is about $100-120mm for Univar.  When compared to an $800-850mm synergized EBITDA post covid recovery (I know lots of assumptions, but I look to value businesses on a normalized world), I think it's a very low capital intensity business. 

[BG2008]

 

 

Bump for Brenntag BNTGY. I bought some during the selloff. While their revenue were down in the 10% range, their earnings were about flat. very resilient business and trading close to all time highs, but still not out outrageously expensive (PE~15-16). It’s better managed than Univar, imo.

   

 

From a pricing perspective, I can see a blue sky scenario where the market gives Univar a 25P/FCF multiple 2 years out when the financials are clean and leverage is lower and they print some organic growth, that could imply a potential $55 share price versus $18-19 today.  But the likely outcome is probably some mid point between $18 and $55 which is still a decent outcome. 

 

It is probably not a bad idea to own 50/50 Univar/Brenntag or a 35/65 Univar Brenntag or a 65/35 Univar Breentag.  These are attractive businesses.

 

Has Brenntag ever traded at 25x P/FCF? If the answer is no, why would the market suddenly apply that multiple to Univar?

 

Taking POOL as an example, I estimate they had $900 million of tangible invested capital and generated about $265 million in FCF for a ROIC approaching 30%.

 

Comparing that to UNVR, I estimate UNVR had $2.1 billion in tangible invested capital and generated about $250 million in FCF for an ROIC approaching 12%.

 

Similar math yields 15% ROIC for Brenntag.

 

Do you have a reason to believe that UNVR will be able to increase cash flows or reduce its capital intensivity in 2 years that would enable them to approach 30% ROIC?

 

I think your $250mm FCF is too low.  I think $350 going to $400mm is the correct figure in 2 years.  They are in the middle of integrating the Nexeo acquisition with additional synergy to extract.  They are also in the process of implementing their new ERP system.

 

15% ROIC for Breentag seems low, can you lay out your math for both?  Would like to compare notes on components of intangible, working capital, versus depreciable assets such as vehicle and PPE. 

 

I think having a view on whether ROIC increases or decreases over time is also helpful.  I am leaning towards increasing ROIC due to densification of route density due to 1) organic volume growth and 2) increased outsourcing of chemicals distribution. 

 

Also, it's important to look at annual maintenance cap ex which I believe is about $100-120mm for Univar.  When compared to an $800-850mm synergized EBITDA post covid recovery (I know lots of assumptions, but I look to value businesses on a normalized world), I think it's a very low capital intensity business.

 

It goes without saying that Univar does not have the Halo Glow of Pool Corp and others today.  But it has the potential to become that over time. 

[Broeb22]

Dang...I had written up a very detailed response to this but my computer rebooted.

 

In short, I got tangible capital by using total assets - cash - intangibles/goodwill - current liabilities + current debt. I got something like $3 billion.

 

For cash flows, I averaged 2018/2019 CFOs and subtracted CapEx. I got something like $400 million.

 

A cursory look says Brenntag has a slightly lower amount of PP&E per $ of sales so maybe there is a little opportunity there, but based on UNVR's new plan to get to 9% EBITDA margins, they need that additional profitability, and then maybe they can hit 20%+ ROICs. If they successfully improve profitability at 9% or close to it, then the price doesn't make sense today.

 

It doesn't seem like Brenntag gets 9% margins, so I have to ask how UNVR plans to achieve that target. In a low-margin business like distribution, that extra margin comes from little blocking-and-tackling things like improving scheduling on the margin to improve route driver productivity. If they could charge higher prices for some services that would be great, and maybe that is a part of it (that they are not correctly pricing certain pieces of business which the ERP will help shine a light on). Working at a low margin company, I can tell you it is excruciating work to wring out the last bits of productivity (maybe I'm looking in the wrong places).

 

And even if your smartest people come up with common sense solutions (like UPS did with avoiding left-hand turns across an intersection), you still need tens of thousands of people to follow those rules and unless you want to be an absolute Nazi in using the telematics to know when drivers don't follow instructions or spend too long at one customer's site where they have built up a relationship, it's tough to gain traction on the little stuff.

 

[BG2008]

Dang...I had written up a very detailed response to this but my computer rebooted.

 

In short, I got tangible capital by using total assets - cash - intangibles/goodwill - current liabilities + current debt. I got something like $3 billion.

 

For cash flows, I averaged 2018/2019 CFOs and subtracted CapEx. I got something like $400 million.

 

A cursory look says Brenntag has a slightly lower amount of PP&E per $ of sales so maybe there is a little opportunity there, but based on UNVR's new plan to get to 9% EBITDA margins, they need that additional profitability, and then maybe they can hit 20%+ ROICs. If they successfully improve profitability at 9% or close to it, then the price doesn't make sense today.

 

It doesn't seem like Brenntag gets 9% margins, so I have to ask how UNVR plans to achieve that target. In a low-margin business like distribution, that extra margin comes from little blocking-and-tackling things like improving scheduling on the margin to improve route driver productivity. If they could charge higher prices for some services that would be great, and maybe that is a part of it (that they are not correctly pricing certain pieces of business which the ERP will help shine a light on). Working at a low margin company, I can tell you it is excruciating work to wring out the last bits of productivity (maybe I'm looking in the wrong places).

 

And even if your smartest people come up with common sense solutions (like UPS did with avoiding left-hand turns across an intersection), you still need tens of thousands of people to follow those rules and unless you want to be an absolute Nazi in using the telematics to know when drivers don't follow instructions or spend too long at one customer's site where they have built up a relationship, it's tough to gain traction on the little stuff.

 

Broeb,

 

I can't believe that various value investors can have such different views on the ROIC calculation.  Anyway, let's use this definition

 

ROIC = (Net Operating Profit After Taxes--NOPAT) / (Invested Capital--IC)

 

NOPAT = $850mm less $120mm of cap ex = $730mm*0.79=$576mm

 

Invested Capital =(Total Assets) - (Excess Cash) - (Non-Interest-Bearing Current Liabilities)  = $6,649mm - $200mm excess cash - -$1413mm of current liabilities - Intangible and Goodwill 2539mm = $2,497mm

 

23% ROIC, but you need to assume they can do $850mm in 2 years when things normalize and after they integrate the Nexeo acquisition

 

Another way that I look at this business is that they will do $850mm of EBITDA in 2 years.  But Cap Ex will be about $120mm a year.  This is a 14% of the EBITDA.  It tells me that this is a very asset light business. 

 

The business requires 1.105bn of net PP&E and can run with $1.1bn of working capital including about $350mm of cash.  You need that capital to run the business.  A distribution business inherently requires working capital.  So they need about $2.2bn of capital in the business to operate.  For that amount of capital, you get $576mm of NOPAT.  Not too bad. 

 

Given that you can leverage the balance sheet.  Let's say that the market is comfortable with 2x EBITDA of leverage.  You put $1.7bn of debt on the business for a $850mm EBITDA business.  Net of taxes, interest payment and cap ex, you wind up with $350-400mm of FCF.  So  you need $2.2-2.3bn of capital and you can put $1.7bn of debt on the business.  You get a run rate ROE in the 70-80% range.  Not too shabby.  You probably can't invest more capital in the business as the business is slow growth.  But that FCF can be used to pay down debt or use to buy back shares etc. 

 

On the 9%, I am skeptical.  What I have learned about these good businesses that deal with commodity input is that margins tend to fluctuate based on price of oil and nat gas.  But the margins that they make per pound tend to be stable over time.  In a low oil price environment their margins tend to expand and vice versa.  So it's important to look at profit per barrel of chemicals sold etc. 

[BG2008]

Broeb,

 

What business do you work in?  Can you expand on it a bit in terms of why is it so hard to expand beyond 9%.  I think I know the answers.  But I would to hear your experience and why.  Thanks in advance. 

[Spekulatius]

^FWIW, Brenntag published their RIOC and how they calculate it in their annual report. Their number was ~13.6% from memory and it went down a bit due to inclusion of lease liabilities.

 

This also includes all the intangibles and right of use. Total invested capital ~5.7 B Euro ( from Memory). The real ROIC number may be a bit higher, if you take into account some amortization.

 

Brenntag‘s numbers are very Transparent and easy to understand. I really like how they go about their business.

 

Univar is messy. If I have the choice between taking a one foot vs a three foot hurdle, I take the one foot one any time.

[BG2008]

^FWIW, Brenntag published their RIOC and how they calculate it in their annual report. Their number was ~13.6% from memory and it went down a bit due to inclusion of lease liabilities.

 

This also includes all the intangibles and right of use. Total invested capital ~5.7 B Euro ( from Memory). The real ROIC number may be a bit higher, if you take into account some amortization.

 

Brenntag‘s numbers are very Transparent and easy to understand. I really like how they go about their business.

 

Univar is messy. If I have the choice between taking a one foot vs a three foot hurdle, I take the one foot one any time.

 

Spek,

 

I agree that Brentag is cleaner.  But I think upside is higher with Univar.  I find it fascinating that Brenntag and all of these specialty chemical companies publish these high single digit to low teens ROIC figures.  But then if you take a P/E approach and ask yourself how much capital you need to run the business and what your cap ex/EBITDA numbers are, they are way higher than the numbers quoted by the company.

 

Also, I ask myself "what is the return on capital for having to hold some inventory for your customers, buying some trucks and owning some warehouses."??  It doesn't seem like a super capital intensive business.  All of these intangible and goodwill calculation.  At the end of the day, I ask myself "if I were a private owner, how much do I need to generate $1 of FCF"? 

 

It is one of those "the man is fat, we don't need to weigh it" and I am really confident that it is not a low teens figure.  It is at least 20% with the levered ROE much much much higher because the business is so resilient. 

 

But a split allocation between Brenntag and Univar probably makes a lot of sense.   

[Broeb22]

Broeb,

 

What business do you work in?  Can you expand on it a bit in terms of why is it so hard to expand beyond 9%.  I think I know the answers.  But I would to hear your experience and why.  Thanks in advance.

 

I work in the paper business, specifically toilet paper and paper towels. I have spent countless hours with the plant manager of our largest converting operation trying to understand how our Bill of Materials says they should get x% scrap rate but when we measure the weight we actually used, we end up with scrap + 2 percentage points. There are certain knowables, like on any parent roll you're going to cut a few inches off each end with the saw, so you have 3.5% scrap right off the bat. Then you have a certain amount of paper left on each roll that can't be used to create another full roll of product, so that gets lost, and that is knowable within a range, so it shouldn't be more than say 20lbs out of a 3,000 lb parent roll. Then there are things like parent roll damage from clamp trucks that are infrequent and should round to 0%. Every time you change from one parent roll to another, you have to splice a roll together with tape and so you can't send that log (which gets cut into several rolls) to a customer and that's 20-40lbs depending on the product. Then you have any issues with quality of the paper itself (maybe its too thin and breaks) or the converting equipment isn't working right. Then you have the saw may not cut the rolls at a straight angle (its often the last roll in a log), so you lose some paper there too.

 

The causes for these problems range from poor product specs (I've checked those and we're mostly good) to poor operator training to poor maintenance etc.

 

Our gross margins are in the teens or twenties, so this 2% difference in scrap has a big impact on our profitability but we struggle to get the granularity we need to have actionable improvements. 

 

I don't know if this is too in the weeds, but is one example of a project I've been intimately involved in which has proven to tough to make traction on.

 

But thank you for asking because simply writing this has sparked some ideas.

[Broeb22]

 

 

On the 9%, I am skeptical.  What I have learned about these good businesses that deal with commodity input is that margins tend to fluctuate based on price of oil and nat gas.  But the margins that they make per pound tend to be stable over time.  In a low oil price environment their margins tend to expand and vice versa.  So it's important to look at profit per barrel of chemicals sold etc.

 

So, you're skeptical on achieving 9% margins but you're not skeptical that they can improve to $850MM NOPAT? How are they going to get to 850MM NOPAT without improving margins to 9% (or close to it)? Their current NOPAT (adding back Restructuring charges and D&A and subtracting CapEx) is about $400 million. So, yes in a hypothetical world where they double profits the ROIC will be in the 20's but what are they going to do to get there? I looked at UNVR closely and I couldn't gain confidence on the path to get there.

 

Can you give examples of specialty chem companies that show low double-digit ROICs that you think are way higher? I just peeked at ESI, CSW, and SHW, 3 of the chemical companies I know, and they all earn 25% ROICs on the formula I use which is directionally similar to the one you use. 

 

 

[BG2008]

 

 

On the 9%, I am skeptical.  What I have learned about these good businesses that deal with commodity input is that margins tend to fluctuate based on price of oil and nat gas.  But the margins that they make per pound tend to be stable over time.  In a low oil price environment their margins tend to expand and vice versa.  So it's important to look at profit per barrel of chemicals sold etc.

 

So, you're skeptical on achieving 9% margins but you're not skeptical that they can improve to $850MM NOPAT? How are they going to get to 850MM NOPAT without improving margins to 9% (or close to it)? Their current NOPAT (adding back Restructuring charges and D&A and subtracting CapEx) is about $400 million. So, yes in a hypothetical world where they double profits the ROIC will be in the 20's but what are they going to do to get there? I looked at UNVR closely and I couldn't gain confidence on the path to get there.

 

Can you give examples of specialty chem companies that show low double-digit ROICs that you think are way higher? I just peeked at ESI, CSW, and SHW, 3 of the chemical companies I know, and they all earn 25% ROICs on the formula I use which is directionally similar to the one you use.

 

Not $850mm of NOPAT, $850mm of EBITDA less $120mm of Cap Ex gets you to $730mm and then 21% corp tax gets you to 577mm

 

They acquired Nexeo and is in the integration period.  There is another $60-80mm of synergy to take out

 

Univar was doing about $650mm of EBITDA standalone

 

Nexeo was $200mm of purchase EBITDA

 

But they sold the plastic business

I forgot how much EBITDA went away

probably $60mm or so

That gets you to $790mm or so

And then add on the synergy

 

It's messy.  It's what I like.  If you're not digging in, you can easily miss out. 

[BG2008]

^FWIW, Brenntag published their RIOC and how they calculate it in their annual report. Their number was ~13.6% from memory and it went down a bit due to inclusion of lease liabilities.

 

This also includes all the intangibles and right of use. Total invested capital ~5.7 B Euro ( from Memory). The real ROIC number may be a bit higher, if you take into account some amortization.

 

Brenntag‘s numbers are very Transparent and easy to understand. I really like how they go about their business.

 

Univar is messy. If I have the choice between taking a one foot vs a three foot hurdle, I take the one foot one any time.

 

Spek,

 

I agree that Brentag is cleaner.  But I think upside is higher with Univar.  I find it fascinating that Brenntag and all of these specialty chemical companies publish these high single digit to low teens ROIC figures.  But then if you take a P/E approach and ask yourself how much capital you need to run the business and what your cap ex/EBITDA numbers are, they are way higher than the numbers quoted by the company.

 

Also, I ask myself "what is the return on capital for having to hold some inventory for your customers, buying some trucks and owning some warehouses."??  It doesn't seem like a super capital intensive business.  All of these intangible and goodwill calculation.  At the end of the day, I ask myself "if I were a private owner, how much do I need to generate $1 of FCF"? 

 

It is one of those "the man is fat, we don't need to weigh it" and I am really confident that it is not a low teens figure.  It is at least 20% with the levered ROE much much much higher because the business is so resilient. 

 

But a split allocation between Brenntag and Univar probably makes a lot of sense. 

 

I love hearing these real world feedbacks.  Thank you so much.

 

Btw, do you have any takes on the corrugated boxes business?  WestRock could be interesting.  These business look like commodity businesses.  But when they have scale, there is quite a bit of advantage in sourcing etc. 

[Broeb22]

^FWIW, Brenntag published their RIOC and how they calculate it in their annual report. Their number was ~13.6% from memory and it went down a bit due to inclusion of lease liabilities.

 

This also includes all the intangibles and right of use. Total invested capital ~5.7 B Euro ( from Memory). The real ROIC number may be a bit higher, if you take into account some amortization.

 

Brenntag‘s numbers are very Transparent and easy to understand. I really like how they go about their business.

 

Univar is messy. If I have the choice between taking a one foot vs a three foot hurdle, I take the one foot one any time.

 

Spek,

 

I agree that Brentag is cleaner.  But I think upside is higher with Univar.  I find it fascinating that Brenntag and all of these specialty chemical companies publish these high single digit to low teens ROIC figures.  But then if you take a P/E approach and ask yourself how much capital you need to run the business and what your cap ex/EBITDA numbers are, they are way higher than the numbers quoted by the company.

 

Also, I ask myself "what is the return on capital for having to hold some inventory for your customers, buying some trucks and owning some warehouses."??  It doesn't seem like a super capital intensive business.  All of these intangible and goodwill calculation.  At the end of the day, I ask myself "if I were a private owner, how much do I need to generate $1 of FCF"? 

 

It is one of those "the man is fat, we don't need to weigh it" and I am really confident that it is not a low teens figure.  It is at least 20% with the levered ROE much much much higher because the business is so resilient. 

 

But a split allocation between Brenntag and Univar probably makes a lot of sense. 

 

I love hearing these real world feedbacks.  Thank you so much.

 

Btw, do you have any takes on the corrugated boxes business?  WestRock could be interesting.  These business look like commodity businesses.  But when they have scale, there is quite a bit of advantage in sourcing etc.

 

We purchase a lot of corrugated for our product, and I will say that switching for us is a big deal. Getting new print plates made for hundreds of SKUs takes a lot of time because every single one needs to be approved.

I don't know as much about the corrugated assets but they have similarity to towel and tissue paper machines and I will say that bringing one of those bad boys online is a big undertaking, hundreds of millions of dollars, and lots of permitting to be close to a water source. There is a commodity element to it with exposure to OCC prices, but as long as they keep their balance sheet in decent shape, I think the competitive positions are pretty strong. But I really haven't look at them as an investment.

 

I honestly don't know how that works with having conflicts of interest. Some of our vendors and customers are public companies, but I have so far stayed away despite some of them being well-run companies and good long-term investments (historically) to avoid any perceptions of conflicts or anything like that. I don't know if I'm being too cautious but those are my thoughts at the moment.