24 February 2012 21:23 [Source: ICIS news]
By Joseph Chang
NEW YORK (ICIS)--The chemical mergers and acquisitions (M&A) market is poised to have another strong year in 2012 on the back of favourable conditions for deal activity, an investment banker said on Friday.
“None of the fundamentals have changed at all. In fact, some conditions have become even better. We see 2012 as a continuation of the strong market and an improvement on 2011,” said Telly Zachariades, partner at the New York office of the global investment bank The Valence Group.
“Much of the M&A market is driven by CEO confidence, and they are more confident regarding the overall market outlook now than several months ago,” he added.
Chemical companies have been experiencing relatively slow organic growth, so many are seeking to generate higher growth externally through M&A, Zachariades said.
In addition, companies have sufficient cash and access to low-cost debt financing to make acquisitions, he added.
The banker expects to see more takeovers of publicly traded chemical companies.
“You can sometimes buy a public company at a multiple cheaper than a private asset in an auction process,” Zachariades said.
A number of publicly traded chemical companies are trading at less than six times earnings before interest, tax, depreciation and amortisation (EBITDA), he pointed out.
“Plus, there is a lot less competition. With a public company, you have a better probability of securing the deal because the number of interlopers is low,” he added.
US-based Eastman Chemical’s agreed deal to buy US-based chemical and materials producer Solutia for around $3.4bn (€2.6bn) has so far not been trumped since the announcement in January.
Financial buyers may also become more active, as there is “clearly financing available for the right deals, particularly in the US”, Zachariades said.
On the sell side, “there is still pent-up supply of divestitures that will be coming out from private equity owners, as there were not many in 2009 and 2010,” he said.
($1 = €0.75)
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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