Global chemicals M&A activity reaches pre-crisis levels - Crotty

18 May 2011 13:19  [Source: ICIS news]

By Anna Jagger

Tom CrottyCOLOGNE (ICIS)--Global chemicals merger and acquisition (M&A) activity is rising to pre-crisis levels, with most of the deals driven by industry rather than finance, Tom Crotty, group director at Swiss-headquartered INEOS, said on Wednesday.

“M&A was a natural part of our lives until 2007,” he told delegates at the Global Petrochemicals annual meeting, organised by the World Refining Association (WRA). “It went away but it’s back.”

In the first four months of 2011, there were $50bn (€35bn) of announced deals in the sector, the equivalent to the pre-crisis deal rate of 2007, Crotty said.

“Companies that have generated a lot of cash are looking to spend it,” he added.

In addition, as producers emerge from the downturn, many are seeking to restructure their businesses to cut costs and prepare for the next set of unpredictable events, Crotty said.

While there have been some major deals announced by financial institutions, the largest of which is Berkshire Hathaway’s $9.7bn bid for US lubricants and specialty chemicals company Lubrizol, most of the deals are being driven by industry.

“The reason we are not seeing more from the financial sector is that some investors are twitchy about the downside risk of cyclical businesses,” Crotty told ICIS on the sidelines of the meeting.

The Lubrizol acquisition was perhaps less of a risk because that business sector has a lower degree of cyclicality, he suggested.

Recently-announced, industry-driven deals include Solvay’s $4.8bn agreement to buy Rhodia and Clariant’s $2.7bn bid for Sud-Chemie.

Divisional acquisitions are also dominated by industry players. Examples include AkzoNobel’s purchase of Dow Chemical’s powder coatings business and Arkema’s purchase of Total Petrochemical’s coating resins business.

M&A activity is also expected from Chinese players as they seek to broaden their geographical reach, Crotty said. One such deal is INEOS’ agreement to sell a 50% stake in its European refining operations to state-owned PetroChina.

“We will see a lot more of those deals going on. They want to be part of our industry, not just in Asia,” he remarked.

INEOS, in the meantime, intends to focus on organic growth and explore joint venture deals - such as its recently announced phenol venture with Sinopec - that take the company into new geographies, Crotty said.

However, this does not preclude bolt-on acquisitions, he added.

INEOS signed a memorandum of understanding (MOU) with Sinopec in January to build a 400,000 tonne/year phenol plant in NanjingChina.

($1 = €0.70)

For more on INEOS visit ICIS company intelligence

By: Anna Jagger
+44 20 8652 3214

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