M&A Predictions For 2012

By Malini Hariharan

After a record year of M&A activity will uncertainty about the global economy and weakness in many chemical markets dampen the appetite for new deals?

Nearly $82bn of deals were completed last year, more than double the dollar volume in 2010, said Peter Young, president and managing director of Young & Partners, in the latest issue of ICIS chemical business. Last year’s number has surpassed the previous high of approximately $55bn in 2007.

The major deals in 2011 included Berkshire Hathway’s $9.7bn acquisition of speciality chemicals producer Lubrizol and Solvay’s acquisition of Rhodia for around $4.9bn.

Young identified five key factors behind the robust M&A scene in 2011:
• An adequate supply of target companies
• A period of solid earnings for both buyers and target companies, and confidence that earnings going forward will be stable
• Ready availability of investment-grade debt at very low interest rate
• The build-up of cash stockpiles by companies and the need to use them
• And the pressure on companies to grow in excess of organic growth

But he was cautious about M&A prospects in 2012 given an uncertain economic outlook. Activity started slowing down in the second half of 2011 and the trend is likely to continue.

However, Telly Zachariades, partner at global investment bank The Valence Group, expected 2012 to be another strong year.

“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,” he said in this report on ICIS news.

He believed that CEOs were still confident about the future and companies had sufficient cash plus access to low-cost debt to finance acquisitions.

It is early days yet to say which of the two predictions will turn out to be true. But CEOs will be under increasing pressure to deliver growth in every possible way.

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