FOCUS: Chemicals M&A expected strong in 2007

25 April 2007 14:43  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Merger and acquisition (M&A) activity shows little sign of abating in the global chemical industry as players seek growth, portfolio realignment and the opportunity to divest unwanted businesses at a good price.

Cash is readily available and the market is spiced by the continued interest of private equity in the sector. There have been some notable hiccups where businesses have proved to be either too complex or tied too closely to difficult end-use markets to sell at a reasonable value.

The ‘fire-sale’ days when companies appeared almost overly-keen to realign unattractive portfolios appears to be past.

Attention has turned, however, to potential mega-mergers and indeed even the break-up of industry giants. Few if any established groups have not attracted attention.

At the top of the tree Dow Chemical has been linked this year with Reliance Industries. The US firm has been subject of private equity break-up speculation. Two of its most senior executives lost their jobs in the ensuing furore.

Potential break-up values have been more openly discussed with even industry giant BASF brought into the frame.

What can and cannot be done in chemicals is still being widely discussed. Aspiring global petrochemical and plastics players seek new opportunities. Regional alliances have been created. In 2006 the M&A scene was marked by consolidation in segments like industrial gases and driven by companies across the board to capture stronger value growth.

In 2007 there are likely to be moves in plastics: General Electric has its plastics business up for sale, and further consolidation in individual market segments. There remains wide scope for European medium-sized specialty chemicals players to be snapped up this year by either strategic or private equity buyers, ICIS Chemical Business has reported.

Medium-sized players, such as UK-based group ICI and France’s Rhodia possibly are vulnerable, the former subject of much speculation and trader hype. There is industry talk about Clariant.

The chemicals sector potential is characterised by Nexant ChemSystems vice president for strategy and finance Neil Checker.

“Industrial companies continue to look at growth through acquisition and private equity players still have a huge amount of liquidity to compete with the industrials,” he says. “All of this is underpinned by the availability of equity and debt finance at reasonable rates.”

The compelling combination of potential and cash will, in 2007, continue to drive the chemicals M&A machine.

By: Nigel Davis
+44 20 8652 3214

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