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                                                                                                                                  Q2 2007
                                                                                  The Chemical Intermediary

Inside this Issue
We are pleased to present our second           nium industry and update you on key de-       •   Sector insight on global titanium,
quarter 2007 issue of The Chemical Inter-      velopments at Lincoln International.              which is driving growth of specialty
mediary, our review of insights, events and                                                      materials manufacturers (p4);
trends in chemicals and specialty materials.   Key topics covered in this issue include:

                                               •   Spotlight Interview with John Televan-    •   Announcement of Lincoln Interna-
In this issue we offer insight into private                                                      tional’s Top 25 worldwide M&A rank-
equity’s perspective on specialty chemicals,       tos of Arsenal Capital Partners (p1-2);
                                                                                                 ing (p5); and
provide statistics and commentary regard-
                                               •   Q1 2007 Market Commentary (p2);
ing trends and developments in the global                                                    •   Announcement regarding Akzo No-
specialty chemicals industry, offer insight    •   Key Market Statistics—Specialty and           bel’s divestiture of Akcros Chemicals
into the unprecedented growth in the tita-         Diversified Chemicals (p3);                   to GIL Investments (p5).

Spotlight Interview: Dr. John Televantos of Arsenal Capital Partners
                                               John Televantos, Executive Vice               Q: What sets you apart from other
                                               President of Arsenal, specializes in          private equity firms in the chemicals
                                               specialty chemicals and materials. Dr.        industry?
                                               Televantos possesses significant relevant
                                               industry experience through his previous      A: Through knowledgeable internal
                                               positions as President of Aqualon, a          resources as well as numerous external
                                               Hercules Inc. Company, President and          resources and contacts, we have
                                               Founder of Helios Chemical Company,           extensive knowledge and experience in
                                               Chief Executive Officer of Foamex             specialty chemicals and are comfortable
                                               International, Vice President of              investing in this sector over the long-term.
                                               Development Businesses at Lyondell            Current and prior investments include
                                               Chemical Co., Vice President of Strategy      Interdynamics, Reilly Industries,
                                               & Commercial Development at Arco              Rutherford Chemicals, Scientific Protein
                                               Chemical Co. and Director of R&D for          Laboratories (SPL), Sermatech
                                               Specialty Chemicals at Union Carbide          International and Velsicol Chemicals. We
                                               Corp. Dr. Televantos sits on the Boards       leverage our staff and network to help our
                                               of Directors of three Arsenal portfolio       management teams create value through
                                               companies, specifically Interdynamics,        increased productivity, reduced costs and
                                               Velsicol Chemicals and Vertellus              accelerated growth. We also offer a
Arsenal Capital Partners is a New York-        Specialties. He is also on the Board of       global view and experience, which is rare
based private equity firm that makes           Balchem Corporation. He earned both           in the middle market.
control investments in specialty               his Bachelor of Science and PhD degrees
manufacturing and service companies.           in Chemical Engineering from the              Q: Do you have particular sector
Arsenal makes investments in sectors           University of London, U.K.                    focus or expertise within chemicals?
where they have prior knowledge and
experience, and targets businesses that        Q: Why has Arsenal chosen                     A: Our network has a broad experience
have the potential for further value           chemicals as a major sector of focus?         in most sectors of the specialty chemicals
creation by working closely with                                                             industry. We focus more of our energy
management to accelerate growth and            A: We really focus on specialty               on businesses that have strong growth
leverage the firm’s infrastructure-focused     chemicals rather than the broader             drivers (market, demographics and
operating team to improve businesses.          chemicals sector as a whole. We find          product substitution), high customer
Arsenal targets growing, niche market          that specialty chemicals have good            intimacy, solutions providers and
leading companies in the specialty             growth prospects that are in many sectors     businesses with lower cyclicality, high
manufacturing & services, specialty            well above GDP due to the markets they        gross margins and strong barriers to
materials, aerospace & defense and             serve. They also tend to have significant     entry. We realize that many companies
healthcare industries. The firm currently      barriers to entry due to proprietary          for sale have a mix of business lines,
has $800 million of committed equity           technologies, high levels of value add and    including those that possess these
capital. For additional information on         strong customer relationships. This often     characteristics and others that do not.
Arsenal Capital Partners, please visit         leads to stable margins and attractive        We are very comfortable with these                        financial characteristics, and provides       mixed assets and in being able to
                                               interesting value creation opportunities.     transform them into higher value
                                                                                             companies in a relatively short time.
                                                                                                                      (Continued on page 2)

 1     Lincoln International D E A L R E A D E R         Chemicals                                                                Q2 2007
Televantos (cont’d)

Q: Any situations you would shy                 Q: How long do you think it can last?         someone like you would look at a
away from?                                                                                    business?
                                                A: There is no sign that portfolio
A: We do not invest in businesses that          realignment or smaller company                A: Our chemical businesses today have
are commodity in nature, have high              opportunities will dry up anytime soon.       significant operations in Europe, so we
cyclicality in sales and earnings, or are       Clearly there are other factors that affect   are very conversant with REACH and
capital intensive. We do like companies         the amount of M&A activity during any         how it will impact the chemical industry.
that have complexity and improvement            given period (such as financing market        We see it as just another regulation
opportunities.                                  conditions and end-market dynamics),          (albeit an important one) that we need to
                                                and we carefully monitor these various        deal with. In some cases we can turn it
Q: In November, Arsenal closed on a             factors every day.                            into an advantage.
$500 million second fund. Are you
seeing increasing limited partner               Q: In this market, how does a private         Q: What are some of the key
interest in chemicals?                          equity firm compete against a                 questions a management team should
                                                corporate buyer in a competitive              think about when co-investing
A: Our limited partners are very                auction situation?                            alongside a private equity firm?
supportive of our investment direction
and continued interest in the specialty         A: We believe we provide speed and            A: When considering an investment with
chemicals sector. We have                       certainty to a transaction. We are willing    a private equity firm, management teams
demonstrated our ability to improve the         to undertake complex deals that many          should consider the potential partner’s
growth profile and profitability of specialty   strategic buyers shy away from. We also       strategic capability to understand, debate
chemical companies, which will                  support transformational changes where        and support management in the
eventually translate into superior returns      we can focus resources and capital to         development of a plan and effective
for our investors.                              grow certain segments of a company and        execution of a strategy. In addition, the
                                                restructure the low growth opportunities.     private equity firm’s experience and track
Q: We are seeing a good deal of M&A             As a small and nimble firm with extensive     record in the particular sector is
activity in the chemicals sector. What          acquisition expertise, we have the            extremely important. Finally, the partner
do you think is driving this activity?          advantage of speed. We can move more          should have the willingness to provide
                                                quickly and reliably than many large,         enabling resources to execute a strategy
A: We believe that specialty chemicals          corporate buyers.                             when the internal company resources
continue to provide opportunities for                                                         may not be sufficient.
investment. As large companies re-focus         Q: There has been a good deal of
their portfolios and smaller companies          ongoing discussion concerning the
look for partners to help them grow, M&A        new REACH chemical regulations in
activity will continue.                         Europe. Does REACH impact how

Q1 2007 Market Commentary — Specialty and Diversified Chemicals

The charts on page 3 provide a statistical      cap EBITDA multiples trading above 9.0x       The following deals were among the larg-
summary of activity in specialty and di-        as of 3/31/2007.                              est announced transactions for the first
versified chemicals. After continuing at a                                                    quarter of 2007:
steady pace over the prior four months,         The $10.1 billion of transaction value
first quarter announced transaction vol-        shown in the first quarter of 2006 in-        •   On February 23, 2007, The National
ume declined 26%, from 42 transactions          cludes two large acquisitions completed           Titanium Dioxide Company (NTDC)
to 31 according to CapitalIQ, Inc. Total        by BASF (Degussa Construction Chemi-              said it has agreed to acquire Millen-
announced value of deals was approxi-           cals, for $3.3 billion, and Engelhard for         nium Inorganic Chemicals from Mil-
mately $1.6 billion. The decline appears        $5.8 billion).                                    lennium Chemicals for approximately
to be fairly evenly spread from a geo-                                                            $1.05 billion in cash. NTDC will also
graphic standpoint, with both Europe and        Despite what the charts say about M&A             assume $150 million in debt as part
the U.S./Canada notching approximately          volume, we continue to observe a strong           of the transaction.
22% - 23% declines in transaction vol-          appetite for acquisitions among the stra-
ume.                                            tegic buyers that we speak with. Many         •   On March 22, 2007, 3M UK Holdings
                                                companies continue to be flush with cash          made a cash offer to acquire E
Public companies participating in the           and are benefiting from strong market             Wood Holdings Plc for $78 million.
specialty chemicals industry continue to        conditions, putting them in a strong posi-        Expected to close in April 2007.
trade at strong valuations. As shown in         tion for acquisition growth. In addition,
the chart on the following page, both the       positive exchange rate dynamics be-
LI Specialty Chemicals and LI Diversified       tween the dollar and the euro make U.S.
                                                                                              •   On February 12, 2007, Sigma-
                                                                                                  Aldrich Corp. acquired Epichem, Ltd.
Chemicals indices have outperformed the         acquisitions more economical for Euro-
                                                                                                  from Intel Capital for a reported con-
market for Q1 2007. Overall, valuations         pean companies.
                                                                                                  sideration of $60 million in cash.
remain strong with both large and mid

 2      Lincoln International D E A L R E A D E R         Chemicals                                                              Q2 2007
Q1 2007 Key Market Statistics — Specialty & Diversified Chemicals
M&A Transaction Activity vs. Deal Value                                                                                                                M&A Transaction by Region
(Announced transactions and transaction values)                                                                                                        (Announced transactions)

              50                                                                                                             $12
                         $10.1                                                                                                                                                100%                2                  2                   3                  3                     3
                           43                 43                                       42
                                                                     40                                                                                                                90%        5                                      3                  3
              40                                                                                                                                                                                                     9
                                                                                                                             $9                                                        80%

                                                                                                                                                             % of total transactions
                                                                                                                31                                                                     70%

                                                                                                                                    $ in billions
 # of Deals

                                                                                                                                                                                                 20                 13                  20                 23                    18
                                                                                       $2.8                                                                                            30%
              10                                                                                            $1.6                                                                                                    19
                                            $1.5                     $1.4                                                                                                              20%       16                                     14                 13                    10
               0                                                                                                             $0
                         Q1 06              Q2 06                   Q3 06             Q4 06                Q1 07
                                                                                                                                                                                                Q1 06              Q2 06                Q3 06             Q4 06                 Q1 07
                                                       # of deals              Deal value
                                                                                                                                                                                                                  USA & Canada      Europe      Asia   Rest of World

Most Active Buyers / Investors (Last Twelve Months)                                                                                                    All transactions by Type (Last Twelve Months)
(Based on announced transactions and transaction values)
 Top 10 Buyers by No. of Deals                                        Top 10 Buyers by Deal Size                                                                                                                    14%
 Company Name                                         No. of          Company Name                                           Deal Size
                                                      Deals                                                                    ($mm)
 PPG Industries Inc.                                           8      Givaudan AG                                        $         2,162
 Akzo Nobel NV                                                 3      Carlyle                                                      2,154
 Tikkurila Oy                                                  4      Advent International Corporation                             1,488                                                     Public Offering
 Nippon Paint Co. Ltd.                                         3      Court Square Capital Partners                                1,349                                                          16%                                                                  Merger/Acquisition
 Tikkurila Oy                                                  3      Weston Presidio                                              1,349                                                                                                                                      49%
 European MasterBatch N.V.                                     2      The National Titanium Dioxide Co.                            1,200
 GE Advanced Materials                                         2      Valspar Corp.                                                   290
 Impreglon AG                                                  2      Chemtura Corporation                                            165
 Sigma-Aldrich Corp.                                           2      PPG Industries Inc.                                             115
 Valspar                                                       2      Kuala Lumpur Kepong Bhd                                         110
 Total Top 10                                                  31     Total Top 10                                       $        10,383
                                                                                                                                                                                                      Private Placement
                                                                                                                                                                                                                    Total number of transactions: 321

Public Market Performance                                                                                                                               Enterprise Value / EBITDA



                                                                                                                                                                                                        9.4x                                             9.6x                         9.6x
                                                                                                                                                                                                                                 9.0x                                        9.1x
                                                                                                                                                    TEV/ EBITDA

                                                                                                                                                                               9.0x                                                               8.9x
     110                                                                                                                                                                                                                  8.4x



          90                                                                                                                                                                   6.0x
              Apr-06                    Jul-06                            Oct-06                       Jan-07                       Apr-07
                                                                                                                                                                                                 June 06             September 06               December 06                  March 07
                                                           1                                       2
                           LI Diversified Chems Industry             LI Specialty Chems Industry                S&P 500 Index                                                                                                Large Cap 3          Mid Cap 4

(1) LI Diversified Chems Index: FMC, CLX, EMN, RHA, HUN, CBT, POL, ASH, DD, EC, OLN, PPG, AKZA, BAS, CE, MON, DOW
(2) LI Specialty Chems Index: Includes all companies in the Large Cap and Mid Cap groups
(3) Large Cap group includes: ALB, APD, ARG, CEM, CYT, ECL, FUL, GRA, HPC, IFF, LZ, NLC, PPG, ROC, ROH, RPM, SIAL, VAL
(4) Mid Cap group includes: ARJ, CBM, FOE, MRD, NEU, OMG, SHLM, SMMX, SXT
SOURCE for all data on this page: CapitalIQ, Inc. (division of Standard & Poor’s), Lincoln International and public filings

3                      Lincoln International D E A L R E A D E R                                                             Chemicals                                                                                                                                                   Q2 2007
Sector Insight: Titanium Growth Lifts Specialty Materials Suppliers
Growth in the titanium market is fueling                               through 2009 to renew and expand their                composites and titanium. Because tita-
significant growth for both titanium manu-                             titanium, nickel-based alloy and superal-             nium interacts better with composite ma-
facturers and the relatively few specialty                             loy melt capabilities and capacity.                   terials, the use of titanium in newer
materials manufacturers who supply to                                                                                        model aircraft has significantly expanded.
the industry.                                                          The growth of titanium in the commercial              The tables below illustrate these dynam-
                                                                       aerospace market is being driven not                  ics.
The titanium industry is experiencing                                  only by the well-documented increase in
unprecedented growth as a result of                                    demand for commercial airplanes, but                  According to TIMET, titanium continues
strength in a number of key segments                                   also by the increasing amount of titanium             to gain acceptance in many emerging
including commercial aerospace, chemi-                                 used in new models of commercial air-                 market applications, including automo-
cals, oil & gas and military, as well as                               craft. Record new aircraft demand is the              tive, energy (including oil and gas) and
emerging market demand in Asia. Tita-                                  result of robust air travel, demand for               architecture. Rapid growth of the Chinese
nium Metals Corporation (“TIMET”), a                                   new, fuel-efficient aircraft, an aging fleet          and other Southeast Asian economies
leading producer of titanium, recently                                 among major airlines and the growth of                has brought unprecedented demand for
stated that based on customer feedback,                                profitable, low cost and international air-           titanium-intensive industrial equipment.
they expect demand for titanium mill                                   lines. ATI estimates that total aircraft              TIMET’s net sales growth into emerging
product to double over a ten year period.                              deliveries will increase from 1,268 in                markets exceeded 50% in each of 2005
The titanium industry is responding by                                 2006 to 1,546 in 2008. Boeing and Air-                and 2006. TIMET has said they believe
investing in sponge and melt capacity to                               bus are sold-out on production for the                emerging market demand could grow at
support growth. For example, Allegheny                                 next 3-5 years. Demand for fuel effi-                 double-digit rates over the next several
Technologies (“ATI”), another leading                                  ciency improvements has led the aero-                 years.
producer of titanium, recently announced                               space industry to use a higher percent-
plans to invest at least $925 million                                  age of light weight materials such as

 Titanium Mill Shipments                                                                           Selected Industry Participants
                               120                                                                                                                Specialty Materials
                                                                                                                                              (Master Alloys, Powders and
                                                                                                    Titanium Producers                                 Coatings)
    Total Pounds in Millions

                                                                                                    Alcoa/ Howmet (US)                    APS Materials (US)
                               80                                                                   Allegheney Technologies (US)          Evraz/ Stratcor (US)
                                                                                                    Baoji Titanium (China)                GfE (Germany)
                                                                                                    Carpenter Technology (US)             KB Alloys/ Reading Alloys (US)
                                                                                                    Daido Steel (Japan)                   Phelly Materials (US)
                               40                                                                   Kobe Steel (Japan)                    Raymor Industries/ AP&C (Canada)
                                                                                                    Perryman Company (US)                 Se-Jong Materials (Korea)
                                                                                                    RMI Titanium (US)                     Uralredmet (Russia)

                                0                                                                   Sumitomo Titanium (Japan)
                                     96      '00          '04   '08         '12                     Thyssen Krupp Titanium (Germany)
                                                                                                    Titanium Metals Corp (US)
 Source: Titanium Metals Corporation
                                                                                                    Toho Titanium (Japan)
                                                                                                    VSMPO (Russia)

 Aircraft Deliveries                                                                               Increasing Use of Titanium in Aircraft

                   1,600                                                                                          Boeing                                  Airbus
                                                                                                                 First       Titanium                    First        Titanium
                                                                                                                Delivery     Content                    Delivery      Content
                                                                                                     Model       Year          (Lbs)        Model        Year           (Lbs)

                                                                                                    737           1965          20,000      A320          1988         25,000

                               400                                                                  747           1966          90,000      A330          1994         37,000

                                                                                                    777           1990          120,000     A380          2007        150,000
                                      2003         2005         2007              2009              787           2008          250,000     A350          TBD         200,000
 Note: Includes Airbus, Boeing, regional jets and military jets.
 Source: Allegheney Technologies and public information.

4                               Lincoln International D E A L R E A D E R          Chemicals                                                                            Q2 2007
Lincoln International in Top 25 Worldwide M&A Rankings, Including Top 10 in Ger-
many and the United States and Top 25 in France and the United Kingdom

We are pleased to announce that Thom-        International was particularly pleased        Lincoln International in the last twelve
son Financial ranked Lincoln Interna-        with the ranking in France given that its     months has provided merger and acquisi-
tional as one of the top 25 mid-market       Paris office only opened in February          tions advisory services to such large
M&A advisors in the world for the first      2006.                                         corporate clients as Akzo Nobel N.V.,
quarter of 2007.                                                                           American Standard Companies, Inc.,
                                             “These rankings reflect the power of al-      Dover Corporation, Edeka, Gerresheimer
Following a strong 2006 performance, in      most 100 M&A professionals working            Group, Illinois Tool Works Inc., Itochu
which Lincoln International was ranked       together enthusiastically in globally inte-   Corporation, Siemens AG and SUEZ
No. 4 in the German market by the num-       grated, industry focused teams,” said Jim     S.A. and such leading financial sponsors
ber of transactions either undisclosed or    Lawson, managing director and co-             as ABN Amro Capital, AXA Private Eq-
with enterprise values up to $200 million    chairman of Lincoln International. Hans       uity, Blue Point Capital Partners, Bridge-
and No. 5 for up to $500 million, Lincoln    Peter Peters, co-chairman, added              point, The Carlyle Group, Code
International was named among the top        “Having professionals located in Europe,      Hennessy & Simmons, Hannover Finanz,
25 M&A advisors worldwide in Q1 2007         the U.S. and Asia is mandatory to suc-        Invest Equity, Montagu Private Equity
as measured by the number of an-             ceed in today’s global M&A market; but,       and Riverside Company.
nounced transactions with enterprise         more importantly, we believe our com-
values either undisclosed or up to $200      mon commitment to unrivaled client ser-
million. Additionally, by this same meas-    vice will continue to generate excellent
ure the firm ranked in the top 10 in Ger-    results. Our business is about providing
many and the U.S. and in the top 25 in       the best possible service and building
France and the United Kingdom. Lincoln       client trust.”

Lincoln International Demonstrates Cross-Border Capabilities with Sale of Akcros
Chemicals to GIL Investments

Lincoln International’s recent assignment    essing aids, viscosity modifiers, bonding
with Akzo Nobel regarding the sale of        agents and antistatic agents. The com-
Akcros Chemicals highlights our ability to   pany sells its products to customers
execute a well coordinated, global mar-      worldwide and maintains its position as
keting process for a middle market busi-     one of the market leaders in both Europe
ness.                                        and North America through its strategi-                               has sold
                                             cally located operations.
As is the case with many chemicals busi-
nesses, Akcros has significant operations    Under the terms of the deal, Akcros
in both the U.S. and Europe. Lincoln         Chemicals’ sites in Eccles, United King-                                  to
International put together a joint team      dom and New Brunswick, NJ, United
comprised of professionals located on        States, along with all of the approxi-
both continents and successfully coordi-     mately 160 employees at these locations,
nated our efforts on a global basis.         transferred to GIL. An agreement was
                                                                                             We served as exclusive financial advisor to Akzo Nobel
                                             also reached whereby Akzo Nobel con-
In April 2007, Akzo Nobel N.V. (“Akzo        tinues to operate two smaller, related
Nobel”) completed the sale of Akcros         production operations in Greiz, Germany
Chemicals, a developer and producer of       and Itupeva, Brazil. Employees at these
polyvinyl chloride (“PVC”) additives, to     two locations, who provide toll production
U.K.-based private investment firm GIL       services to GIL, remain with Akzo Nobel.
Investments Limited (“GIL”). Terms of                                                      Lincoln International acted as the exclu-
the transaction were not disclosed.          “Transferring the bulk of the PVC addi-       sive financial advisor to Akzo Nobel and
                                             tives activities to a new owner is the best   worked closely with the senior manage-
Akcros Chemicals, headquartered in Ec-       way forward for the business, which will      ment team of Akcros Chemicals to com-
cles, United Kingdom, manufactures           continue to operate under its current         plete this transaction.
mixed metal and tin stabilizers, epoxy       name,” explained Leif Darner, member of
plasticizers, biocides and driers, as well   Akzo Nobel’s Board of Management re-
as markets a full range of complementary     sponsible for Chemicals.
products such as impact modifiers, proc-

5     Lincoln International D E A L R E A D E R       Chemicals                                                                                Q2 2007
Lincoln International’s Global Footprint

              Chicago                                                                                       Over 65 professionals in the U.S.
                                                                                                            Over 35 professionals plus a 13-
                        New York
    Los                                                                                       Tokyo*        person advisory board in Europe
    Angeles                     Vienna
                                                                                        Hong Kong*          *Strategic partnerships in Asia


About Lincoln International                                                     Chemicals Group Contacts
Lincoln International Group (“Lincoln International”) specializes in
                                                                                NORTH AMERICA                        FRANKFURT
merger and acquisition services and private capital raising for leading
                                                                                Christopher D. Cerimele              Daniel Schenk
organizations involved in mid-market transactions. With offices in Chi-         Senior Vice President                Senior Vice President
cago, Frankfurt, Los Angeles, New York and Paris, and strategic part- 
                                                                                +1-312-580-1987                      +49-69-97-10-54-35
nerships with China Everbright and other partner firms in Asia, Lincoln
International has strong local knowledge and contacts in the key global                                              PARIS
                                                                                Edward A. Hanlon
economies. The organization provides clients with senior-level attention,       Managing Director                    Jean-René Hartpence
in-depth industry expertise and integrated resources. By being focused     Managing Director
and independent, Lincoln International serves its clients without conflicts                                          +33-01-53-53-18-21
of interest. More information about Lincoln International can be obtained       Federico G.M. Mennella, CFA          Ludovic Rodié
at                                                Managing Director                    Managing Director
                                                                                +1-212-277-8103                      +33-01-53-53-18-23

                                                                                         Brad Keyworth, Associate,
                                                                                                 Chad Lewis, Analyst,

6      Lincoln International D E A L R E A D E R            Chemicals                                                                           Q2 2007

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