Illustrative · A specialty chemicals unit · Not a client engagement

One blended number. Two very different businesses.

A unit that reports a healthy margin can hide a borrowed one. Below, a specialty chemicals unit priced two ways: as one blended business, and on its parts. Decompose the bar, then move the cycle.

Beat 01 · The blended number

Priced as one business, the unit trades on a single blended multiple: 8.0x current EBITDA. The bar on the right is that number. It looks durable. Specialty line: $240.0M revenue at a 20.0% margin. Commodity grade: $520.0M revenue with EBITDA that swings from $35.0M at trough to $95.0M at peak.

Beat 02 · Price it on its parts

A disciplined buyer does not pay one multiple for two businesses. The specialty line earns 11.0x on its full EBITDA. The commodity grade earns 5.5x, and only on what it makes at mid-cycle. Anything above mid-cycle is borrowed from the cycle: the buyer pays 0x for it, while the blended lens pays 8x.

The read

Blended lens EV
$…
Whole unit at 8.0x current blended EBITDA
Sum of the parts EV
$…
Press Decompose
Specialty: the durable franchiseStable EBITDA across the cycle, and starved of capital. Priced on full EBITDA at 11.0x.
Commodity at mid-cycleWhat the commodity grade earns on average across a full cycle ($65.0M). Priced at 5.5x.
Borrowed: above mid-cycleExtra EBITDA that exists only while the cycle is high. The cycle takes it back on the way down, so a buyer pays 0x. The blended lens pays 8x.

The decision

Exit the borrowed earnings. Fund the franchise.

The answer is not to fix the unit as one thing. It is to exit the commodity exposure while the cycle still pays for it, and put the freed capital behind the specialty line that has been quietly starved. The blended number could never have told you that. The decomposition just did.

Put this lens on your portfolio
AIROEDGE SOTP STORYTELLER · ILLUSTRATIVE ECONOMICS, INTERNALLY CONSISTENT · SIMPLIFIED VIEW. THE TRANSACTION-GRADE SOTP ENGINE IS APPLIED IN ENGAGEMENTS, NOT PUBLISHED.