“The strong increase in chemicals M&A deal value is mainly due to the participation of private equity. In contrast, strategic investors remained cautious in view of the continued economic uncertainty,” said Andy Walberer, A.T. Kearney partner and chemical industry expert.
While value was up, actual transaction volume was down. According to A.T. Kearney, the 22 percent surge was attributed to a few high-value deals, and US-based investments saw their share of total global deal value grow by 14 percentage points. The top-three deals in the last half-year were solely completed by US players: Carlyle and DuPont Coatings; the acquisition of PPG’s basic chemicals unit by Georgia Gulf; and Ecolab Inc.’s purchase of Permian Mud Services.
The combination of stock market volatility, a slow economic recovery, and uncertainty about China’s future growth caused many chemical sector investors to remain cautious, inhibiting the stronger growth expected within the Chemicals M&A market. Moreover, easy access to capital actually decreased the number of targets available as the necessity to sell off businesses for financing reasons remained low.
Projecting the first half-year development on the second half of 2013, chemical sector M&A deal activity in 2013 is now only expected to grow by one percent rather than the previously expected three percent growth rate.
Some private equity players were able to complete a few high-value deals in the first half of 2013. For example, Carlyle Group acquired DuPont’s coatings business and Advent International purchased Cytec’s resins business. These and other high-value deals significantly increased overall value in chemical deals activity.
The report also notes that large petrochemical players were not involved in high-value transactions. “Large petrochemical players in the US have been shifting their focus from external to internal investment opportunities due to the currently low energy and feedstock prices. The expectations about return on investment for these internal projects are significantly higher and as a result, the appetite for external acquisitions was lower in the US,” said Kish Khemani, A.T. Kearney partner and chemical industry expert.
The A.T. Kearney analysis “Chemicals Executive M&A Report Midyear Trend Review 2013” is based on an analysis of all completed deals in the chemical industry in the period 2003 to the first half year of 2013 and provides an outlook for 2013, as well as a survey of executives at chemical companies and investment banks.
For a copy of the report (you will need to provide some basic information on yourself) click HERE.
© 2013 PEPD • Private Equity’s Leading News Magazine • 7-30-13