subject: Predicting Merger & Acquisition Trends With Chemical Advisory Firms [print this page] One of the most important facts that a chemical advisory will leverage to help its clients is the general tenor and outlook of the current M&A deal pipeline. The mood and deal volumes chemical deal advisors have had to analyze the past two quarters as well as the successes and failures of fixtures in various chemical markets are particularly interesting, and they way the third quarter stands in stark relief to the second suggests that complex picture chemicals CEOs' adaptations in strategy post-2008 slowdown.
Though many sources have pointed this out recently, the Bloomberg title from October 9 puts it in the simplest terms: "Chemical M&A Grinds to Slowest Pace Since 2009." Transaction volume and value tanked from Q2 to Q3 this year, with total deal value dropping by 64 percent in this short period. Deal value was also $48.5 billion higher in September 2010 than in 2011. IPOs in the sector have stalled and many large deals were put on hold. Many chemicals companies report stagnant or falling revenue in North America and the EU. From this perspective the situation is decidedly bleak for not just chemical advisory opportunities but even for some chemical companies' futures.
This reality is made worse by the excitement felt about the rebound in the middle of the second quarter of this year. A Fitch Ratings report from late summer 2011 found that strategic chemicals M&A deals, especially in specialties sectors, had played a major role in spurring strong growth in deal volume from late 2010 into early 2011. Deal volume to date, several major deals, and the general feeling of a bright future for the sector's acquisition potential had even many skeptics looking at the data and anticipating that 2011 would surpass 2007 and 2008 for total deal volume and value, making it a record-setting year at the same time as it would have been an incredible comeback from the depths of the recession in 2009. So when data for the third quarter started to trickle in, it showed a new slowdown that nobody wanted, few expected, and many felt signals an impending double-dip recession across the West.
There were those in the chemical sector and chemicals advisory world who saw the rumblings of this downturn. Overly diversifying acquisitions, general ongoing economic woes, climbing energy prices, and general commodity volatility were all established facts and can wreck havoc on a recently recovered chemical sector. Coupled with the debt crisis in Europe, it is not that surprising that 2011 couldn't live up to the hype and be the best year ever for chemicals M&A deals.
But, to be fair, industry analysts and some CEOs have made clear that many companies have healthy balance sheets and are not in trouble, and they are confident about the future. This situation has existed for several months, and just as it served to suggest the possibility of future big deals, it should now indicate that they can happen once CEOs are again ready to make big acquisitions. They are just focusing on ensuring that they have trimmed all the fat they need to in order to keep debt in check, and are stalling deals until a more opportune time; they are not getting ready to divest or go belly-up. This should help chemical advisory firms to temper any serious fears and prepare potential clients so that they are ready to strike when the time is right.
