FocusM&A market to feature distressed assets

09 February 2009 20:49  [Source: ICIS news]

Distressed assets for saleBy Joseph Chang

NEW YORK (ICIS news)--The global chemical industry’s mergers and acquisitions (M&A) market could see a slew of distressed assets hit the selling block as companies seek to raise cash to pay down debt or improve their liquidity in a severe downturn, said investment bankers on Monday.

“Some companies need to sell to raise cash or prune their portfolios. These sales are not motivated by price, but the need to do the transaction,” said Chris Cerimele, managing director and co-head of chemicals at global investment bank Lincoln International, in an interview with ICIS news.

“As companies seek to preserve cash and liquidity, we are going to see more asset sales - some to address pending maturities,” said Tim Wilding, managing director and head of chemicals at US-based investment bank Oppenheimer.

“One lesson is that as a chief financial officer, the number one rule is that you should always push your debt maturities out. You should never have debt maturing in three to four years,” he added.

US-based specialty chemical firm Chemtura has $370m (€285m) in bonds coming due in July and is looking to sell assets.

The company has put its crop protection and petroleum additives businesses on the block, according to sources in the financial community.

The crop protection unit could fetch between $700m-$1bn, sources said.

“If you’re a seller, you probably only want to sell if you have to,” said Telly Zachariades, cofounder and partner of global chemical investment bank Valence Group.

“If you had a choice you probably wouldn’t want to sell today, unless it was a relatively small business. In any event, a highly targeted sale process is the way to go,” he added.

The M&A market has shifted to a buyer’s market, according to Omar Diaz, senior vice president and co-head of chemicals at US-based investment bank Houlihan Lokey.

“However, there still needs to be a change in seller psychology. Many of the sellers out there still have inflated valuation expectations and have not adjusted to the new world,” he said.

And more distressed assets will hit the selling block as leveraged companies restructure, he noted.

“Companies that were leveraged buyouts [LBOs] can only go through so many covenant resets before they eventually have to deal with that day of reckoning where they have to restructure the company - either through asset sales or in a bankruptcy where the bondholders will wind up owning the company,” said Diaz.

In addition to distressed asset sales, companies may also seek defensive combinations to cut costs and improve competitiveness.

“I foresee companies coming to the table to discuss mergers or joint ventures out of necessity. It’s almost a life or death kind of thing - that we should put these businesses together and figure out a way to take out costs,” said Oppenheimer’s Wilding.

“Where up until last year mergers were about driving top-line and earnings growth, it’s now going to be about surviving and cutting costs,” he added.

($1 = €0.77)

For further analysis of the chemical M&A market, look for the 23 February issue of ICIS Chemical Business
Bookmark Paul Hodges’ Chemicals and the Economy Blog

 


By: Joseph Chang
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