Chemicals Mergers & Acquisitions Prompted Sector Consolidation

Chemicals Mergers & Acquisitions Prompted Sector Consolidation

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One of the biggest themes being applied to the very active chemical mergers and acquisitions market of 2010 and the first quarter of 2011 is restructuring. Several chemical mergers experts argue that the downturn in the chemicals sector and in chemical M&A activity that resulted from the economic recession in 2008 prompted a much needed series of consolidations and acquisitions that are breathing new life into stagnant markets of the sector.

First, decreased economic activity pushed down the valuation of assets in the sector. Falls in profits forced CEOs to evaluate their firms' portfolios with a critical eye that would have been unknown just two or three years earlier. Six months later, analysts were predicting that by the second half of 2009 a flood of distressed assets would hit the market. This is about the time that the Chinese and Indian recoveries had gained some significant momentum, leaving many of their firms and much of the oil-rich Middle East with cash in hand. Along with gobbling up commodities pouring out of emerging economies that had been able to use significant foreign currency balances to spend their way out of the recession more quickly, these buyers enjoyed several great chemical mergers and acquisitions that left sellers equally happy to trim the fat.

Second, by the middle of 2010 U.S. and European firms had also really gotten into the action, along with intermediaries and private equity firms, with assets moving everywhere internationally, and many growing firms seeking to acquire quick access to the emerging economies that had rebounded so well. The spree of activity left new players flush with cash from sell-offs, such as headline-maker Solvay, and ready to make new deals to diversify or do whatever they need to reach new business goals.

As a result of all this activity, many chemicals mergers and acquisitions experts describe this period from when transactions picked up in 2009 through the first quarter of 2011 as one of transition and consolidation. One of the outcomes of the stronger chemicals sector that this restructuring promoted has been a slow but dramatic increase in deal size. Clearer balance sheets, increased deal volume, and the sell-off of unneeded assets has left several players with enough cash on hand, credit, and equity support to make major buys. The first three quarters of 2010 saw 33% more mega deals than did all of 2009.

As the economic recovery's momentum and a number of other conflicting factors make confirming optimistic predictions for the medium term of chemicals mergers and acquisitions difficult, the ultimate outcome of this restructuring remains unclear, but there is no denying that the sector underwent significant geographical reorientation or that firms restructured their assets.

About the Author:
Chemical merger and acquisitions activity picked up in 2010, restructuring chemicals submarkets. Decide how consolidation affects your firm's growth plans at valencegroup.com.



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