M&A buying interest in chemicals remains strong - US banker

08 December 2011 21:47  [Source: ICIS news]

NEW YORK (ICIS)--The demand to buy chemical assets is still strong, despite an overall slowdown in merger and acquisition (M&A) activity since the second half of 2011, an investment banker said on Thursday.

“The motivation to do deals remains strong, with corporate cash levels high and leverage levels low,” said Chris Cerimele, director and head of chemicals at US-based investment bank Houlihan Lokey.

Cerimele spoke at the Chemical Marketing & Economics (CM&E) Group meeting in New York.

“We are seeing fewer auctions but more one-on-one negotiated discussions,” he added.

Concerns about another global recession amid slowing economic growth and the continuing eurozone debt crisis has softened M&A activity, he noted.

“Deals are getting done, but the overall level of activity has declined,” said Cerimele.

While there is significant interest on the buy-side, sellers have been more hesitant. This has led to relatively high M&A valuations, he noted.

“Transaction values have held up on strong buyer interest and scarcity premiums,” said Cerimele.

Certain chemical assets generating between $30m–50m (€23m–38m) in earnings before interest, tax, depreciation and amortisation (EBITDA) are currently fetching 8 to 10 times that value, he pointed out.

These strong valuations are likely to lead to sellers coming out of the woodwork in early 2012, said John Televantos, partner at US-based private equity firm Arsenal Capital Partners.

“Strong balance sheets for strategic buyers and abundant capital among private equity firms means that a lot of people that have been waiting to sell businesses will finally crack and put them onto the market,” Televantos said at the CM&E meeting.

Looking ahead, the slower economic growth environment could also be conducive to deal-making as companies seek another way to growing sales and profits.

“As organic growth prospects decline, there is increasing pressure to get growth from external measures such as M&A,” Cerimele said.

($1 = €0.75)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

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