Global chemicals M&A activity picks up slightly in Q2 2009, Finds PwC

Economic Decline Slows Chemical Industry Deal Activity for First Half of 2009, According to PricewaterhouseCoopers

Average Deal Size Drops 56% in Q2 2009 from the Prior Quarter

NEW YORK, August 13, 2009 — The stressed global economy continues to have a negative effect on deal volume and value globally, according to a new PricewaterhouseCoopers LLP report on M&A activity in the chemicals industry, Chemical compounds: Second-quarter 2009 global chemicals industry mergers and acquisitions analysis.

While total deal volume was down only seven percent for the first half of 2009, compared to the first half of 2008, the volume of deals with a disclosed value greater than $50 million was down 43 percent. However, when compared to the first quarter of 2009, deal volume did pick up in the second quarter of 2009, increasing 15 percent to 187 deals. Despite the increase in the number of announced deals, the average deal size decreased to $72 million in the second quarter of 2009 from $163 million in the prior quarter, indicating that while small deals continue, credit markets remain relatively tight, inhibiting the number of large deals.

In the second quarter of 2009, North America and Asia Pacific saw the majority of M&A activity in terms of deal volume while North America and Western Europe dominated in terms of deal value, due to the announcement of a single large deal. In Asia Pacific, of the deals involving a company in China or India during the first half of 2009, 28 percent and 40 percent, respectively, were the result of an acquisition by a foreign entity.

"Given the current state of the credit markets, it is not unexpected that the volume and value of deal activity in the chemicals sector in the first half of 2009 continued to remain below levels experienced in 2008," said Saverio Fato, global chemicals leader for PricewaterhouseCoopers. "However, as China and other emerging markets rebound faster than perhaps the more mature markets, there is potential for an increase in deal activity, which could positively impact the industry as a whole."

Strategic investors continue to be the driving force in M&A activity in 2009, accounting for 87 percent of the deal value in the first half of 2009. In contrast, given the current economic conditions, it is not surprising that the deal value from financial investors is down from 2007 and 2008 levels.

The Rise of China

As the deal activity continues to increase in the AsiaPac Region, the second quarter Chemical compounds report takes a deeper look at China specifically, including the country’s continued impact on the global economy, as well as the challenges and opportunities that exist for companies looking to initiate or expand existing business with China.

China continues to be the world's largest importer of chemicals and the third-largest consumer of chemicals. Demand for petrochemicals and plastics is expected to rise each year over the next decade, and China's chemical industry is expected to grow at an average rate of more than 10 percent through 2016. It is clear that China has committed massive resources to encourage domestic consumption and that it has targeted international growth for its companies.

For information on Chemical Compounds and to access the full report, including the special section on China, visit our chemical industry website at www.pwc.com/us/industrialproducts.

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