Economy Buoys Chemical Deals

The improving economy is boding well for chemical industry mergers and acquisitions (M&A). The number of announced deals priced at more than $50 million in the first half of 2010 was up 45% compared with the same period in 2009, according to a recent survey by PricewaterhouseCoopers (PwC), an audit, tax, and advisory services firm.

The combined value of the 45 agreements announced was $28 billion, compared with $18 billion for 31 deals in the first half of 2009. Among the major deals announced this year are BASF’s $3.8 billion purchase of Cognis and a more than $7 billion takeover attempt of Airgas by Air Products & Chemicals.

The number of large deals actually completed in the first six months of 2010 was 32, which was greater than all those finalized in 2009, reports investment banking firm Young & Partners. “The M&A market has picked up significantly, and we clearly are headed for an improved M&A year,” President Peter Young tells C&EN.

In the first half of 2010, the value of consummated deals totaled $29 billion, compared with $25 billion for all of 2009, Young adds. The 2009 figure was dominated by Dow Chemical’s $15.5 billion purchase of Rohm and Haas.

Strategic industry investors are outpacing financial investors in deal-making, PwC analysts report. Improving financial markets may be freeing up cash for financial investors, but many companies that have come through the downturn with strong balance sheets view mergers and acquisitions as a means to expand their businesses.

Most of the first-half growth was in the first quarter. The total value of $50 million-plus deals was $21 billion in the first three months of the year, PwC reports, when five deals of at least $1 billion were announced. In the second quarter, with just two megadeals, the total fell to $7 billion, which is still in line with 2009 levels.

PwC expects the rest of the year to be even stronger. On the basis of unannounced deals still in the pipeline, Tracey Stover, the firm’s global chemicals leader, anticipates “both the average deal size and total number of deals to increase in the second half of 2010.”