An M&A comeback in the works

mergersblog.jpgIt’s been a miserable year for chemical mergers and acquisitions (M&A) – the financial and economic crisis put the brakes on deal-making as financing dried up and earnings visibility disappeared.

The big deals announced last year – Dow Chemical/Rohm and Haas, and BASF/Ciba – got done in 2009, but these deals represented the last throes of a multiyear bull market in chemical M&A.

US-based Dow was dragged into closing its acquisition of specialty chemicals giant Rohm and Haas at a peak-of-the-market price, while Germany’s BASF announced it would shut down or sell 25 out of the former Switzerland-based specialty chemicals firm Ciba’s 55 sites worldwide.

Few, if any, are looking at these types of multibillion dollar deals now.

But while we’re in the midst of a seasonal summer lull, investment bankers are hoping that post US Labor Day (September 7), deal activity will rise once again.

And there’s some reason for optimism. Agree or not, there is growing worldwide consensus that the Great Recession is over. At the very least, some companies now have greater visibility in their earnings outlook as economies around the world stabilize.

And distressed assets will continue to hit the selling block. Bankrupt US-based specialty chemicals firm Chemtura has put its polyvinyl chloride (PVC) additives business up for sale, according to our sources.

And there are signs that the financing market is coming back, although slowly, and only for companies with investment-grade credit ratings.

In August, US-based industrial gases firm Air Products sold $400m in senior notes with a 4.375% coupon, while Praxair sold $600m in 4.5% notes. US-based chlor-alkali and ammunition-maker Olin sold $150m in 8.875% senior notes while Dow sold $2.75bn in various debt instruments. More are lining up, according to John Rogers, head of the chemical group at ratings agency Moody’s Investors Service.

Get ready to deal!

Photo credit: VR business brokers

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