Chemical M&A market like ‘Jekyll and Hyde’ – Eastman exec

06 December 2012 22:43  [Source: ICIS news]

NEW YORK (ICIS)--The chemical mergers and acquisitions (M&A) market has a split personality like “Dr Jekyll and Mr Hyde”, an executive from US-based Eastman Chemical said on Thursday.

“On the one hand, companies have cash and a desire to make acquisitions, and financing is easy to come by. But there is anxiety over uncertainty in the economic outlook. That makes it hard for buyers and sellers to agree on value,” said Damon Warmack, vice president of corporate development and strategy for Eastman.

Warmack spoke on a panel on the chemical M&A outlook at the Chemical Marketing & Economics Group meeting.

“Also as a buyer, it is tougher to get board approval on deals,” he added.

The novel called The Strange Case of Dr Jekyll and Mr Hyde was published in 1886 by Scottish author Robert Louis Stevenson. It involves a split personality, where the good Dr Henry Jekyll transforms into the evil Edward Hyde.

Eastman Chemical completed its $3.4bn (€2.6bn) acquisition of US-based specialty chemicals and materials supplier Solutia in July 2012. Including debt, the deal was valued at $4.8bn.

The uncertain outlook has “raised the bar” on coming up with a strong enough strategic rationale to make acquisitions, said Warmack.

Cross-border acquisitions pose particular challenges, as the risks are higher, he noted.

“Surprise is the enemy, and sometimes in cross-border acquisitions, you understand the business less and encounter more surprises,” Warmack said.

“Also you typically have less capability of dealing with these surprises,” he added.

The key is understand the risks, including from a regulatory and legal standpoint, and find ways to mitigate them, said the executive.

“Some buyers just put adders on their [investment] hurdle rate, going from say 15%, to 22%, but this is just Russian Roulette,” said Warmack.

“A deal may have a high projected return, but when you encounter major risks, that means nothing. You have to have a plan,” he added.

Dean Willard, executive-in-residence at US private equity firm The Jordan Group, also sees uncertainty in the economic outlook making for a difficult M&A environment in 2013.

“I think we’ll get a very slow start to 2013 in the first half, and then start top pick up in the second half if issues in the economy are resolved. If the US falls off the fiscal cliff, Europe will only get worse,” said Willard.

“We are really cautious, but open to opportunities,” he added.

The uncertain economic outlook is the main driver of the slower activity – not the tax situation, said Chris Cerimele, director of US-based investment bank Houlihan Lokey, who moderated the M&A panel.

($1 = €0.76)

By: Joseph Chang
+1 713 525 2653

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