Western Europe maintains highest deal value, but largest number of deals occur in North America
Philadelphia, August 16, 2007 - The robust chemical merger and acquisition (M&A) activity in 2006 maintained strong momentum through the first half of 2007, according to
Chemical Compounds, a new quarterly report on the state of transactions in the global chemicals industry, launched today by PricewaterhouseCoopers. Defined by deal value, the first half of 2007 outpaced the first and second halves of 2006 due to the large value of mega-deals. While in 2006, the largest number of deals took place in North America, Western Europe's deals boasted the greatest value.
The specialty chemicals segment has driven most of the activity so far this year, which increased from $28 billion in 2006 to more than $40 billion in just the first half of 2007. Additionally, based on recently announced deals, it is expected that the commodity chemicals sector will show a significant increase in M&A activity that should surpass that of 2006.
Strategic investors continue to drive deal volumes, contributing to almost three-quarters (74 percent) of total chemicals M&A activity. In both 2006 and 2007, the top two largest mega-deals for each year were strategic acquirers. Financial investors contributed the remainder (26 percent). Although private equity investors were not the winning bids on these deals, they were active in the bidding process for many mega and smaller transactions. The high level of activity is likely to continue throughout 2007.
The regional distribution of all deals in 2006 and through the first half of 2007 indicates that Asia Pacific has been an attractive region for smaller deals (less than $50 million). However, deals so far this year in Asia Pacific are not on track to exceed the number of deals completed in 2006. The pace of deals in BRIC countries – Brazil, Russia, India and China – has slowed somewhat during 2007, most notably in China and India. Deal flow in Brazil and Russia is on pace to exceed 2006 levels.
“Based on the mega-deals announced in the first half of 2007, as well as those announced in July, we have seen evidence that chemical companies have been taking advantage of the current economic environment to make major changes in their portfolios or ownership structures. However, the full impact of recent changes in the debt markets used to finance many deals has not yet been fully understood. We will be following those changes closely and report on their impacts in upcoming issues of
Chemical Compounds," said Saverio Fato, global chemicals leader, PricewaterhouseCoopers. "Also, as a result of some private equity firms making major investments in the mega-deal category, we could see additional mega-transactions as these firms look to exit these investments. The structure, valuation and timing of these exits may, however, be impacted by the severity and duration of the recent shifts in the financing markets."
Companies based in North America accounted for 84 large deals collectively worth $54 billion -- 41 percent of the total value that changed hands. The bulk of the transactions occurred in the U.S., 13 of which were mega deals worth at least $1 billion. Average deal values in both North America and Western Europe were significantly higher than in the rest of the world.
Tracey Stover, U.S. chemicals leader, PricewaterhouseCoopers, commented, "Consistent with the trend during the past three years, deal value continues to be higher in Western Europe than in the U.S. This could be due to the relative weakness of the U.S. dollar compared to other major currencies, which would tend to make acquisitions in the U.S. less expensive."
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