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Economy Despite tough times, chemical executives expect to invest

by Michael McCoy
September 12, 2011 | A version of this story appeared in Volume 89, Issue 37

Rising raw material costs and a struggling global economy aren’t deterring chemical industry executives from pursuing acquisitions, investing in new technology, and expanding into new markets. That’s the conclusion of a new survey by KPMG, an audit, tax, and advisory firm.

In the survey of 142 senior-level chemical executives in the U.S., Europe, and Asia, 66% of respondents said their firms will engage in mergers and acquisitions (M&A) as the buyer in the next two years. European executives were even more bullish, with 71% expecting to be buyers.

In addition, 70% of chemical executives said their companies have cash on their balance sheets they can use for deal-making and expansion. Fully 80% plan to boost capital spending next year.

“Overall, chemical executives are telling us that they intend to put their money to work and boost investment in key areas, and almost two-thirds of executives say they’ll invest the capital before year-end,” says Michael J. Shannon, leader of KPMG’s chemicals practice.

The bullishness comes despite uncertainty about the economy. Swiss chemical maker Clariant lowered its 2011 profit prediction last week, citing the strong Swiss franc and “increasingly difficult economic conditions.” And stock analysts at Buckingham Research lowered earnings expectations by 10% or more for several U.S. chemical firms.

The struggling economy will make growth difficult for chemical makers, Shannon explains, and set the stage “for increased expansion in emerging markets, M&A, and innovative product strategies as companies look to gain an edge.”


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