Chemical M&A driven by small deals - consultant

05 August 2008 20:51  [Source: ICIS news]

NEW YORK (ICIS news)--Global chemical industry mergers and acquisitions (M&A) activity continues to be robust, driven by small deals, US consultant PricewaterhouseCoopers (PwC) said on Tuesday.

Through the first half of 2008, there were 374 announced deals, PwC said. At the current annualised pace, 2008 will fall behind the 839 deals made in 2007.

However, it could approach the 2006 level of 759 transactions, the consultant said.

The rate of deal making sped up as the year progressed, with the number of transactions in the second quarter almost doubled from that in the first, PwC said.  

Among deals exceeding $50m (€32m), the average value in the second quarter was $340m, down from $545m in the first quarter, the consultant said.

“Deal activity in the first half of 2008 was similar to what we have seen during periods of economic uncertainty, with a relatively large number of conservative deals driven by companies taking incremental steps to shift their position in the industry through acquisitions,” said Saverio Fato, global chemicals leader of PricewaterhouseCoopers.

While Hexion Specialty Chemicals called off its merger with Huntsman in the second quarter, raising questions about the future of chemical M&A, weeks into the third quarter, Dow Chemical announced its $18.8bn acquisition of Rohm and Haas and Ashland its $3.3bn buyout of Hercules, PwC said.

“Looking at these announcements in light of the economy and industry conditions, we surmise that companies are continuing to look at M&A as a step-change tool to drive fundamental change in their market position, which is essential as the volatility in raw material prices and end-market demand continues to impact their financial results,” Fato said.

“Additionally, we take comfort that companies have enough confidence in the global economy and financing markets to pursue large deals with strategic rationale in the current market, which continues to appear difficult for financial investors,” he said.

Financial investors accounted for 20% of deal activity in the second quarter, up from 10% in the first quarter, PwC said.

In 2007, they accounted for 21% of deal activity, PwC said. In 2006, they comprised 26%.

“Although financial investor activity is down compared with 2007, given the amount of cash that appears available to fund major acquisitions, we believe that private equity will become active again in the bidding process for chemical companies,” Fato said.

($1 = €0.64)

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