23 August 2006 13:07 [Source: ICIS news]
LONDON (ICIS news)--The global chemicals industry is set to experience further consolidation as mega deals seem to be an emerging trend but European mergers and acquisitions activity may be affected by new European Union (EU) regulations, PriceWaterhouseCoopers (PwC) said on Wednesday.
In a recently released report entitled Chemical Compounds - Mergers and acquisitions activity in the global chemicals industry, 2003-2005, the accounting and consulting firm said mounting competition from new producers in developing countries and resource rich regions, rising oil prices and greater regulation had provided huge challenges to traditional industry players.
“Interest in the chemicals sector remains unabated and with the desire to consolidate and secure greater scale, there are many opportunities,” said Saverio Fato, global chemicals leader at PwC.
Many chemicals companies have been moving into new business areas and disposing of non-core activities, using M&As to improve market position in ?xml:namespace>
To an extent financial investors based in the US and Western Europe have helped speed up the consolidation of the sector by investing when there were fewer strategic buyers with the interest or the finance to do so, said PwC.
“Typically, they adopt very different approaches to strategic buyers and also often have their exit strategies planned before they have even completed the purchase. The value of chemical assets that private equity has sold is now even starting to exceed the value of assets acquired.”
“The trend towards mega deals is becoming more pronounced which is building up the phenomenal pace of volume and value of deals,” he added.
In the first half of this year, nine deals worth $1bn (about €780m) or more were completed or announced compared with 15 mega deals in 2005, accounting for 62% of the total value transacted.
“The value of these deals is spiralling upwards with year-on-year doubling of previous transactions,” said PwC.
The introduction of new initiatives like Reach, the EU's draft law on the registration, evaluation and authorisation of chemicals, as well as its emissions trading scheme were expected to play a bigger role in European deal activity in the future.
“Some chemicals could be withdrawn from the market or succumb to substitute products which will drive re-thinking of operational profitability and consequently deal economics,” PwC said.
“The development of the European Union Emissions Trading Scheme will have a similar effect,” it added. “The need to incorporate the cost of carbon abatement is making the process for valuing carbon exposed assets in the chemicals sector more difficult.”
“Disparities between and uncertainties about different regulatory frameworks are increasing this complexity. The cost of carbon is therefore now also a key consideration that must be incorporated in all strategic decisions and deals."
PwC said in the report that
German companies alone accounted for 27 large deals. There were 12 deals involving UK-based targets and 10 involving French targets. Companies based in
North American companies accounted for another 84 large deals worth a total of $54bn, 41% of the total value that changed hands. The bulk of the transactions occurred in the
Average deal values in both
The Asia-Pacific region accounted for just 33 large deals collectively worth $11.9bn, 9% of the total traded value. Only three such transactions took place in the Japanese market, a fact that reflects its business culture and preference for cross-shareholdings rather than takeovers, PwC said.
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