Assessing Chemical Advisory In The Current Climate

With strategic buyouts coming from all over the globe and helping specialty companies

achieve their goals in a number of ways, and creating a total chemicals M&A deal volume for 2011 that may surpass previous record levels, it's understandable that this action has garnered so much attention. Chemical deal advisors certainly played a role in many of these deals, especially in helping lead clients to make the right purchases and sell-offs as the recovery was just beginning. Now a new recession looms. Though there is certainly some debate about what it could mean for the chemicals industry, the value of chemical advisory services has never been higher.

Even now, new reports continue to highlight the surge of M&A activity in the chemicals sector that began at the tail end of the recession and has continued on strong since. Taking stock of the current situation suggests a great deal for how the industry could perform through a possible recession. Experts point to the nature of M&A deals in the past several months to estimate future responses. A lot of the purchase capitol at the start of the recovery came from China, Brazil, and other developing economies. As it continued, companies in the West came to represent a larger portion of M&A activity, but the general goals were the same: find material, capital, or human expertise synergies; gain access to new geographic markets; take advantage of cost-cutting partnerships; and acquire strategic targets for future development within the niche sector.

Through this time and these deals, at least one major factor about how CEOs and advisory services evaluate potential deals changed. Regardless of current market volatility or the high of a few months ago, they tend to have very different risk assessment criteria. They can accept more of certain types of risks, such as leveraged but sustainable assets, but are more information hungry to the degree that they may avoid hostile takeover if there is a concern that elements in the target will present hurdles for thorough due diligence.

As a result of successful acquisitions and sell-offs, as well as healthy sector activity during the recovery, many companies are well positioned to take appropriate action during a recession. Strong profits, tighter budgets, increased efficiency efforts, and closer attention to detail have left certain players with healthy balance sheets or even flush with cash.

Some chemical advisory experts argue that these facts, combined with weak market valuations for strong assets and a related market volatility actually create ideal circumstances for very valuable acquisitions. The logic is that even if the economy slows, many healthier companies have already trimmed down and can easily return to a lowest-cost model. They will have enough capital and borrowing ability to get great deals for already undervalued assets when the recession forces parent companies to offload.

Of course, there are others who think the industry will suffer just as all others, with only a few sharks able to benefit from the recession and perceived market volatility. This argument is strengthened by the relatively weaker position of many economies that did far better than average during the last recession.

In either case, the point is that deals will continue as the recession begins and deepens. But with so much uncertainty, chemical advisory firms that have the resources and experience to conduct superior research and valuation will be even more instrumental to firms' success.

by: John V

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