Global chemical M&A transaction slows

Since the beginning of this year, global chemical M&A transactions have seen a growth curve from high speed to slowing down: In the first quarter, 27 M&A deals were completed, 18 in the second quarter and 16 in the third quarter. In response, the report released by Young & Partners, a US investment bank, recently analyzed that although the number of global chemical M&A transactions this year has increased significantly from last year, it has begun to show signs of fatigue. With investors' concerns about the uncertainty of the global economic outlook and the intensification of financing difficulties, the global chemical M&A market may be spurred from the beginning of the year and gradually become weak.

The increased interest of strategic investors in the acquisition of specialty chemicals has stimulated a strong recovery in global chemical industry mergers and acquisitions this year. After reaching 65 transactions last year, 61 mergers and acquisitions transactions were completed in the first three quarters of this year. The transaction volume reached 64 billion U.S. dollars, an increase of 40% from the 39 billion U.S. dollars in the same period of last year. This is also the last few years in the world. A rare situation in the chemical M&A market. Peter Young, president and managing director of Young & Partners, analyzed that the remarkable performance of the first three quarters has enabled the global chemical M&A market to reach its peak both in volume and in value. However, data shows that in the 16 mergers and acquisitions announced in the third quarter of this year, the total amount was 11.3 billion U.S. dollars, far lower than the 34 billion U.S. dollars in 23 cases in the second quarter. And the trend of reduction did not stop. From the end of September to mid-November, there were only five cases totaling 506 million US dollars worth of M&A transactions completed.

However, the reduction in M&A transactions is essentially different from the 2008 financial crisis. Potential investors do not lack cash flow support. Instead, they hold large amounts of cash in their hands and have the ability to continue to make profits. However, because some chemical companies that need to purchase raw materials and intermediates have already felt the pressure of rising raw material prices due to the difficulty in improving the utilization rate of upstream production, coupled with the fact that the economic downturn has seriously affected the profitability and cash flow, it is better to Preparing to withstand the liquidity crisis is the first issue potential investors need to solve in the current situation. In the absence of more news about the future economic situation is clear, to stay afloat is a potential investor's delay.

Tracy Stoff, head of global chemical business at PricewaterhouseCoopers, said: "Since the financial crisis in 2008, global chemical companies have actively taken measures to cut costs, which gives them greater room for manoeuvre under current market conditions. However, the current global economic downturn has cast a thick haze on investors' mentality."

Young&Partners's investment bank analysis report pointed out that although the feasibility of debt financing has not been questioned, but under the influence of the spread of the European debt crisis, the economic outlook is hazy, and the stock market decline has reduced the market value of chemical companies, also leaving potential investors’ CEOs in a shadow. Because this leads to a substantial premium in M&A valuations. Peter Yang pointed out that the key to influencing the future trend of the chemical M&A market is not how to adjust itself internally, but how much the external economic environment will have an impact on the chemical industry.

Although the pace of global chemical M&A has slowed down, historical experience shows that the real freezing point of the chemical M&A market should occur when buyers and sellers expect significant differences in transaction prices. However, judging from the current market performance, it is still far from this step. Peter Yang said that the current may be a period conducive to restructuring of the merger and acquisition market.

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