Chemical Mergers Slow In First Half Of 2012

In yet another signal of the poor outlook for the global economy, the total value of mergers and acquisitions (M&A) in the chemical industry slowed in the first half of 2012. Chemical M&A activity totaled $25.3 billion for the period, according to the consulting firm PricewaterhouseCoopers, compared with $55.8 billion in the first half of 2011. The number of deals also declined, to 54 from last year’s 66.

“Volatile energy prices combined with an uncertain economic outlook, especially in Europe, have created a challenging deal environment across the chemicals sector,” says Anthony J. Scamuffa, the consulting firm’s U.S. chemicals practice leader. Chemical M&A activity may remain constrained in the near term, he adds, with full-year deal value decreasing more than 40% if the current pace of activity does not improve.

On the plus side, Scamuffa reports, chemical companies have plenty of cash on hand and have lowered their debt loads considerably since the end of the Great Recession in 2009.

But the scarcity of “megadeals”—those worth more than $1 billion—helped put a damper on total deal values in the first half, Scamuffa points out. Among the few $1 billion-plus acquisitions was Eastman Chemical’s purchase of Solutia for $4.7 billion, announced in January, and Moly­-corp’s $1.3 billion acquisition of rare-earths firm Neo Material Technologies, disclosed in March. And in the second quarter, Cabot snapped up activated-carbon manufacturer Norit for $1.1 billion.

Consolidation in the market for agricultural products resulted in two large deals in the first half. Chinese firm Yunnan Yuntianhua bought out the similarly named Yunnan Yuntianhua International Chemical, a manufacturer of fertilizers and agricultural chemicals, for $2.8 billion in a deal announced in June. In March, Canadian fertilizer producer Agrium said it will buy the agricultural products business of food commodities firm Viterra for $1.8 billion.