NEW YORK - August 4, 2011 – Large mergers and acquisitions (M&A) in the global chemicals industry helped drive the total value of deals to over $14 billion in the second quarter of 2011, according to the second quarter edition of Chemical compounds, a quarterly analysis of M&A activity in the global chemicals industry by PwC US. The quarter recorded four mega deals, or deals worth $1 billion or more, for a combined total value of $10.6 billion — representing approximately 74 percent of total deal value for the quarter.
In the second quarter of 2011, there were 28 deals valued at $50 million or more worth $14.3 billion compared to 31 transactions totaling $16.3 billion in the second quarter of 2010. Average deal value decreased slightly during the second quarter of this year to $512 million from $526 million in the same period in 2010, due to lower deal value for announced mega deals. Despite a year over year decline in deal value and volume in the second quarter of 2011, total value and volume for the first six months of 2011 is up by almost 39 percent and more than 11 percent, respectively, versus the first half of 2010.
“While deal volume and value dipped in the second quarter, we’re on track to equal or exceed 2010 M&A activity and value,” said Tracey Stover, global chemicals leader for PwC. “The deal environment remains solid and the opportunity for growth, combined with strong balance sheets and a positive debt environment, leads us to believe that activity should continue to grow through the balance of 2011. We expect that smaller deals, which have been gaining steam since the first quarter, will continue to gain momentum and may level set larger deals by the end of the year.”
In contrast to the larger deals, there were 24 smaller transactions (deals valued at $50 million or more but less than $500 million) totaling $3.7 billion in value, up slightly from $3.6 billion in value in the second quarter of 2010. There were no mid-sized deals announced in the second quarter of 2011.
According to PwC, strategic buyers once again dominated overall M&A activity, accounting for 81 percent of volume and 85 percent of value in the second quarter of 2011. Of the four mega deals announced in the second quarter of 2011, three were strategic deals and involved targets and acquirers from North America, South America and Europe. This compares to the three mega deals in the second quarter of 2010, which comprised of two strategics and one financial buyer.
“Strategic deals were the catalysts for deals of all sizes in this quarter, and we expect that trend to continue,” added PwC’s Stover. “Financial leverage remains flat, cash-on-hand has increased substantially and companies with heavy balance sheets are well-positioned to make acquisitions to bolster growth and improve market share.”
For deals valued at $50 million or more involving BRIC countries, deal activity increased during the second quarter of 2011 to 12 deals announced for BRIC targets versus eight in the same period last year. For the second quarter of 2011, China led BRIC-affiliated transactions with nine domestic deals, with three of those China-based deals, or 33 percent, classified as financial deals, a higher proportion than that of the sector as a whole (26 percent).
“We’re continuing to see a lot of interest and activity in the BRIC countries, and we expect that the continued emphasis on global reach and new market development will lead to ongoing expansion into these developing markets,” added Stover. “China likely will remain the most active BRIC country, given the size of its economy and the rapid pace of its industrial expansion. At the same time, Asia and Oceania will continue to drive local deal volume through 2011 as smaller Chinese companies find it beneficial to combine and achieve economies of scale to better compete globally.”
As a result of Chinese domestic activity, the Asia and Oceania region accounted for 43 percent of transactions valued at $50 million or more in the second quarter of 2011. UK and Eurozone targets generated 32 percent of activity in the second quarter, despite financial concerns with some of the region’s economies (e.g., Greece), while North American targets accounted for approximately 14.3 percent of activity.
Continued PwC’s Stover, “Chemical companies of all shapes and sizes, especially those engaged in developing markets like the BRICs and industry activities, such as plant or product inspections, certifications and sales to governmental offices, need to be particularly careful when considering a deal in foreign markets. Dealmakers need to pay special attention to how they conduct their diligence, and have a comprehensive understanding of the risks for their businesses as governments and regulators around the world scrutinize deals and relationships for corruption.”
For a copy of Chemical compounds, PwC’s quarterly analysis of M&A activity in the global chemicals sector, please visit www.pwc.com/us/industrialproducts.