19 March 2013 18:32 [Source: ICIS news]
By Jeremy Pafford
HOUSTON (ICIS)--A robust mergers-and-acquisitions (M&A) season in the global chemical industry is primed for takeoff, two industry analysts said on Tuesday.
“There’s a fair amount of these transformation transactions for organisations – both from the buy side and the sell side – that are now starting to happen,” said Mike Shannon, global leader of chemicals and performance technologies practice for KPMG, a global auditing firm.
“I think many of these have been in the works for multiple years. It’s just that the market conditions are now better and more supportive of these transactions occurring,” he said.
After a few years of global economic malaise, M&A activity awoke from hibernation last year with a string of mid-sized deals.
In January, US-based specialty chemical maker PPG completed the merger of its commodity chemicals business with US-based ?xml:namespace>
In December, PPG agreed to acquire the Netherlands-based AkzoNobel’s North American decorative coatings business to further strengthen its core business.
US-based specialty chemical and materials firm Cytec Industries announced in October its deal to purchase UK-based composite and process materials producer Advent’s coating resins business.
In a broad sense, the deals signaled that companies were emerging from a period of simply trying to survive the economic downturn to planning how to make the most of an economic recovery,
“I think everybody was cautious in terms of taking that leap of faith and doing something that was going to be a change to the organisation or something that redefines the organisation,” he said. “I think we’re starting to see more of that happening now.”
The M&A activity is indicative of the types of deals that will likely occur in the coming years, said Paul Harnick, KPMG’s global chief operating officer for the company’s chemicals and performance technologies practice.
“I think in general what we’re going to see is a continuation of middle-sized deals, albeit I do think there’s a number of companies out there that could potentially go do something larger if they wanted to, especially in the US,” Harnick said.
“There are a lot of chemical companies who sat on a hell of a lot of cash. At some point somewhere down the line, they’re going to get pressure from their shareholders to either go and invest it or to start giving it back,” he said. “Your average executive, given the opportunity, would rather do a deal than just give the money back to shareholders.”
Big deals, if they come, could emanate from emerging markets such as
“I still think there’s the potential for one of those larger companies from an emerging market region to make their bold move into the Western chemical industry,”
“We’ve been waiting for that for a few years now, really since SABIC took out GE Plastics [in 2007],” Harnick said. “There haven’t really been any large moves by the emerging markets guys, albeit they continue to talk about it.”
“Certainly, the companies in
Globally, Shannon and Harnick view North America has a prime merger environment, and see companies actively seeking to get into emerging markets such as
But many companies have not made specific plans, as 28% of the firms recently surveyed by KPMG said they have no emerging market strategy.
South America is a more mature market than some areas of Asia with tons of potential for chemical companies, but political instability and the geography make cross-border transactions impractical,
“It’s hard to have a continental approach to
“If you’re doing business in
“In terms of the economic situation, there’s no real light at the end of the tunnel,” Harnick said.
European chemical makers are facing the likelihood of cheaper products flowing out of the
European chemical companies will need to invest in technology and decouple themselves from relying on GDP growth to succeed,
That is a prescription for success not just in
Most M&A in the chemical sector will be about a company moving up the value stream,
“I call it the ‘conga line’, where companies are moving themselves up the value chain and other companies are coming in and buying the assets that are being divested and are able to manage them in many cases for a decent profit,” he said.
That “conga line” could start forming more and more across the globe,
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