07 November 2007 16:53 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Deal-making activity has reached a new peak in chemicals in 2007 which is unlikely to be surpassed given the direction many expect the cycle to take.
But let’s not talk doom and gloom just yet. There are probably more juicy tie-ups to be struck in the sector. Some may yet involve big name players.
So far this year the mergers and acquisitions (M&A) scene has been dominated by multi-billion dollar transactions to the extent that announced deal values in the first nine months of the year outstripped that in all of 2006.
Business advisers PricewaterhouseCoopers (PwC) say there were a total of 615 announced deals in chemicals in the first three quarters of this year compared with 558 in the similar period of 2006.
The value of deals stands out, with the total hitting $88bn (€61bn) against a comparable $42bn and a full-year 2006 deals value of $55bn.
Deal making has not ground to a halt as some might have expected given the ?xml:namespace>
“M&A has proven to be resilient based on the third quarter volume [of 231 announced deals] as compared with 2006 and the first half of 2007,” PwC says.
But money is no longer cheap and private equity has pulled back from some of the more highly leveraged deals. Industrial players this year and last have found themselves in a strong position.
Flush with cash, they can pump in more equity to make potential deals more palatable. New strategic players in the sector this year particularly have made their presence felt.
Deal-making activity has reflected the fact that so many companies have felt the time was right to make key strategic changes to their portfolios.
Companies are acquiring growth and footholds in potentially important new markets. They have also been prepared to outbid financial players who nonetheless have been extremely active themselves.
Deal targets have been largely in the
As PwC notes, several Middle East companies have been active bidders in 2007, including SABIC (Saudi Basic Industries Corp), Abraaj Capital (which has acquired Egyptian fertilizer interests) and Cristal (which acquired Lyondell’s titanium dioxide business).
The number of deals with
The business advisers do not comment on the prices being paid for such key assets but deal multiples have hit new recent highs, with some acquirers happy to be paying close to 10 times normalised EBITDA (earnings before interest, tax, depreciation and amortisation) to get what they want.
And getting what they want is what it is all about. Players across the sector with cash in their pockets want to be bedding in new acquisitions before the market turns down.
That means that they probably have about a year to run before supply/demand balances start to work against them.
The greatest current concerns are with the credit crunch and close to record high oil prices and the impact on global economic growth. Yet even against such a backdrop corporate strategies will be played out – as the data show they have been during the third quarter.
Companies still want to acquire new, less cyclical growth and growth in new geographies. Players across the sector continue to seek out new M&A opportunities.
Chemicals M&A has built momentum through 2006 and 2007 and it will take time to dissipate.
($1 = €0.69)
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