InterviewM&A transaction multiples to decline

24 January 2008 23:21  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--The decline in the values of publicly traded chemical stocks will bring down merger and acquisition (M&A) valuations as well, an investment banker said on Thursday.

“There has been a realignment of valuation across the sector, with diversified chemical stocks now trading at historical lows of around 7x EBITDA [earnings before interest, tax, depreciation and amortisation],” said Omar Diaz, senior vice president and co-head of chemicals at investment bank Houlihan Lokey. “We see that trickling down to the M&A market as well.”

The S&P Chemicals Index has fallen 14.5% since the beginning of 2008, from 316.74 to a low of 276.60 on Tuesday, before rebounding to around 297 in late afternoon trading Thursday.

Diversified majors such as US-based Dow Chemical and Germany’s BASF have taken major hits.

“M&A multiples of around 9x EBITDA will have to trend lower,” said Diaz. “Leverage ratios [indicating how much buyers can borrow] have gone down, and increasing economic uncertainty will lead to lower transaction values.”

However, M&A activity remains at high levels, especially in the middle market with deals $500m (€340m) and below, he noted.

“We haven’t seen a downtick in activity or discussions in middle market,” said Diaz. “However, we see overall deal volume down about 20% versus 2007, comparable to 2005 levels.”

Diaz said he sees hot areas of deal activity in adhesives and coatings, oilfield services, fine chemicals and personal care ingredients.

($1.00 = €0.68)

By: Joseph Chang
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