Last week, BASF agreed to buy German specialty chemical firm Cognis from its private equity owners for €700m ($862m), while US-based Corn Products International announced its $1.3bn acquisition of National Starch from AkzoNobel. And Bain Capital just closed on its $1.63bn buyout of Styron from Dow Chemical on June 17.
In the BASF/Cognis deal, the total enterprise value (EV) including the assumption of debt and pension obligations comes to €3.1bn. Based on Cognis having generated €422m in adjusted earnings before interest, tax, depreciation and amortization (EBITDA), BASF is picking up Cognis for a relatively modest transaction multiple of around 7.3 times EBITDA - about the average for specialty chemical deals in 2009 based on US investment bank Scott-Macon's estimates.
The price being paid is healthy but far from frothy. In the M&A bubble days of 2006 and 2007, buyers were paying over 10 times EBITDA for these assets, according to US-based investment bank Young & Partners.
Today's M&A valuations, which are based on more stabilized earnings over the past year, are conducive to deal-making. There's enough in it for both buyers and sellers.
And these valuations are unlikely to rise much higher based on the current state of public equity markets. Using JPMorgan estimates, US chemical stocks with a substantial specialty component trade at about 7 times projected 2010 EBITDA.
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