Europe a buyers' market for chems industry M&A: law firm

12 December 2013 12:30  [Source: ICIS news]

Europe a buyersLONDON (ICIS)--The European chemicals industry’s shift towards downsizing, as companies seek to focus on their strengths to remain competitive, has created a buyer’s market for mergers and acquisitions (M&A) in the sector, US-headquartered law firm Squire Sanders said on Thursday.

The move to offload non-core businesses means there are numerous bargains in the sector for prospective acquirers, the firm said. By contrast, prices are currently at a premium in the Asia Pacific region, Squire Sanders added.

Squire Sanders partner Carolyn Buller said, “A number [of] chemicals firms are looking to downsize in Europe, resulting in more of a buyer’s market than there is elsewhere in the world.”

There was a 45% year-on-year increase in deal volumes in the third quarter of 2013, with a total of 103 deals agreed, but total deal value dropped by 28% to $10.8bn (€7.9bn) during the quarter, according to Squire Sanders.

A drop in total deal value often indicates a decline in big-ticket purchases, but the chemicals sector has seen 19 deals of over $500m agreed in 2013 so far, more than in 2008, according to Squire Sanders.

The drop in deal value speaks more to an absence of mega-transactions, Squire Sanders said, with companies of varying sizes being purchased without anything to equal the Cargill’s $14.8bn spin-off of a stake in fertilizer company Mosaic in 2011.

The firm added that the dominant theme in chemicals sector M&A this year has been one of strategic investments and divestments, with private equity taking a back seat to industry deals. As a result, buy-out activity has been muted over the past year, Squire Sanders said.

Private equity acquisitions were down 26% year on year in the first three quarters of 2013 to 32 deals, and dropped 41% in overall value to $5.2bn.

The largest three deals of the year to date were all in Europe, including the acquisition of Germany-based oxo-alcohols specialist Oxea by the Oman Oil Company from private equity firm Advent International.

The deal speaks to the increasingly positive environment for exits, Squire Sanders said, with the estimated $2.4bn price tag representing a substantial return on Advent’s $634m purchase price. However, Advent has owned the company since 2006, far beyond the traditional hold period for private equity investments.

The Chengdong Investment Corporation’s purchase of a 12.5% stake in Russian fertilizer producer Uralkali for an estimated $2bn and UK-headquartered investment firm Cinven acquiring Germany-based ceramics business Ceramtec from US-based chemicals producer Rockwood Holdings for €1.4bn were also among the top-price M&A deals during the period, according to Squire Sanders.

($1 = €0.73)

By: Tom Brown
+44 208 652 3214

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