InterviewEurope chems M&A to heat up as private equity looks to exit

18 November 2010 18:03  [Source: ICIS news]

LONDON (ICIS)--Merger and acquisition (M&A) activity in Europe's chemicals sector should continue to accelerate in 201,1 as the gap between buyers’ and sellers’ expectations narrows and private equity players look to exit existing investments, a UK-based M&A lawyer said on Thursday.

Improving trading conditions during 2010 have created a more buoyant M&A environment for chemicals in Europe, which should continue next year, according to Jeffery Roberts, a partner at Gibson, Dunn & Crutcher.

Roberts said the gap between buyers’ and sellers’ expectations of value will continue to shrink next year, allowing for more transactions to take place.

“The valuation gap will still be there in 2011, though it may continue to narrow. It has been a good year for transactions in the chemical sector, with values rising from 2009 to 2010.”

A debt refinancing “wall” is approaching in 2013-2014 for private equity players who did deals in the boom years of 2006-2007, further stimulating M&A activity next year, Roberts said.

“Clearly there is not enough debt available to refinance everything, so they will need to think of ways to deal with it. A number of private equity clients are considering their options. People need to do this sooner rather than later.”

Roberts said private equity groups are more likely to exit through sales rather than initial public offerings (IPOs) during 2011, because an IPO requires more confidence from financial markets.

“The markets are still choppy, and the sovereign debt crisis could continue to make them jittery,” he said.  

“This year we’ve seen a release of pent-up demand for M&A and this should continue in 2011, so I’m reasonably optimistic.”

However, other macroeconomic factors such as rising energy prices and the impact of austerity measures could put the chemical industry under pressure and negatively impact M&A.  

Roberts said the current “buyers market” has allowed his clients to offer deals such as earn-out transactions, which have not been used widely for several years.

In an earn-out transaction, the value of the deal is linked to future revenues or operating profits. This can be less attractive to sellers who don’t get all their money at once.

Read Paul Hodges’ Chemicals and the Economy blog
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By: Will Beacham
+44 20 8652 3214

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