Think Tank: M&A activity cools in uncertain times

26 October 2012 08:43  [Source: ICB]

Chemicals merger and acquisition (M&A) activity is likely to slow further given the current demand uncertainty, but it still looks as though 2012 could be on a par with 2010, at least in terms of deal value.

BASF plant Rex Features

 Rex Features

BASF has made acquisitions to boost its advanced battery technologies business

"The number of chemical M&A transactions in Q3 2012 [the third quarter of 2012] has held up despite apparent weakening macroeconomic indicators in Europe and Asia," M&A advisory firm the Valence Group said. "Any indication of a decline in deal volume was muted, with Q3 data at similar levels to the same period last year. Overall value of M&A activity this year is expected to be comparable with 2010 but down on ... 2011."

A number of relatively large deals have been completed in the past few months, and financial buyers have been active. The sale ofDuPont Performance Coatings to the Carlyle Group for $4.9bn (€3.8bn) was agreed at the end of August. Advent International agreed in October to buy Cytec Coating Resins for $1.03bn.

The view earlier this year was that industrial players would be playing a more significant role in the 2012 M&A picture. They have cash resources built up through relatively good times since the 2008-2009 slump. It had appeared that they might be primed strategically to make M&A moves.

But predominantly, the Valence Group notes, chemical companies have been sellers of the larger businesses. "Companies are evaluating acquisitions more carefully, although still keen to ­invest across the spectrum, especially in non-transformational transactions," the Valence Group says. This means that firms continue to evaluate and complete bolt-on acquisitions, sometimes in specific product or end-use areas. BASF is a case in point in battery technologies. The chemicals giant has made a number of acquisitions in a relatively short period that should prove important to its new advanced battery technologies business.

A trend highlighted by Valence, however, has been increased activity from players headquartered in Asia and the Middle East. "Over the last five years about 35% of all chemicals M&A originated in/from Asia and the Middle East, and indeed 15% of all chemical acquisitions were outbound M&A from these regions," the advisory firm says. "This is a huge increase from 10 years ago, when activity in these regions was nascent."

The Valence Group identifies three drivers for the greater involvement of Asia and Middle East players in chemicals M&A globally: China's growth plans, the strengthening of the Japanese yen and still high oil prices.

By: Nigel Davis
+44 20 8652 3214

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