Pace of Mergers Slows in Third Quarter

The number and value of chemical acquisitions worth more than $50 million has declined significantly from early in 2011. There were 22 deals made in the third quarter, down from 31 in the second quarter and 33 in the first quarter of this year, according to a report by consulting firm PricewaterhouseCoopers (PwC).

The total value of deals has also declined. In the third quarter, combined deal value was up slightly to $16.0 billion from $14.8 billion in the second quarter, but it was still considerably lower than the $42.0 billion recorded in the first quarter. Despite the dip, PwC points out, four deals bigger than $1.0 billion were announced during the third quarter; the largest was Ecolab’s $8.1 billion purchase of water treatment firm Nalco.

The main force steering executives away from acquisitions is economic uncertainty, says Tracey Stover, global chemicals leader for PwC. “There are discussions happening and some activity but it’s not resolving into public announcements due to economic weakness or potential weakness.” Compared with the first quarter of the year, when economic recovery caused the merger floodgates to open, Stover says, executives are proceeding more slowly now and with more caution.

Even though economic trends appear unsteady, larger firms, especially those with strong balance sheets, are still looking to acquisitions to help fuel growth, Stover says. In three of the four megadeals, the purchasing company is based in the U.S.: Ecolab, Tronox, and OM Group all had cash on hand after years of careful cost cutting.

European firms looked overseas for acquisitions, as in the case of Lonza’s purchase of U.S.-based Arch Chemicals. “This could be due to European investors seeking higher growth rates than may be available from domestic economies, as well as concerns about local economic conditions,” suggests the PwC report.

The third quarter showed a noticeable change in activity in emerging economies, especially China. Whereas Chinese firms were involved in 17 deals during the first half of 2011, they only accounted for four deals in the third quarter, the report found.