InterviewChem industry M&A should expand in 2010, 2011 – US exec

04 March 2010 22:56  [Source: ICIS news]

By Ivan Lerner

NEW YORK (ICIS news)--The global chemical industry can expect margins to expand beginning in 2010 and earnings to recover - and with them, mergers and acquisitions (M&A) to return, a US chemical financier said on Thursday.

Tim Wilding, managing director for US financial services provider Oppenheimer & Co, said that debt and equity have “improved considerably… and M&A activity is picking up. We are in an obviously better place than we were last year”.

Wilding was speaking at a luncheon in New York City held by the chemical marketing and economics group of the American Chemical Society.

For 2009, M&A activity was down “but not out”, said Wilding.

There was a significant pick up in activity in the 2009 fourth quarter, with a 61% increase over the third quarter and an 89% increase over the 2008 fourth quarter. Wilding projects that pick-up continuing into 2010, with the pace of deal activity accelerating into 2011.

“Despite all the… gloom and doom, corporate America is sitting on a lot of cash,” said Wilding. “Companies are forced to redeploy assets if cash is not giving enough return.”

But what may occur in the near-term “is probably the last [major] wave of industry consolidation” to be seen for a while.

Chemical stocks have consistently outperformed broader indices over the last year, noted the financier. This is partially the result of industry “overreaction to the downturn”, said Wilding.

Several companies exceeded analysts’ expectations in the recent quarter. Some US chemical makers continued strong earnings per share (EPS) growth for the past 24 months, he said, including Albemarle, with an increase of 103%; Ashland at 146%; Eastman at 91%; and DuPont with 80%.

Performance has been driven by both genuine growth and a restocking of inventory, Wilding said.

From a peak of $2,600bn (€1,590bn) in chemical industry M&A deals in 2007, global M&A activity declined to its 2004 levels of roughly $1,500bn in 2009, he said.

Wilding said it would be “tough to get back to 2007 levels”.

Compared with the rest of the world, the M&A activity of US-based companies has also decreased on a proportional basis, he said.

In 2004, 36.5% of M&A deals involved American companies, but that declined to 19% in 2009.

Additionally, there are fewer deals being done with specialty chemical companies. In 2003, about 70% of the global M&A activity involved specialties. By 2009, however, that was down to 24.6%, Wilding said.

($1 = €0.73)

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By: Ivan Lerner
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