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Questioning Chemical Mergers & Acquisitions – Advisors Hopeful on Medium-Term Predictions


The noise in the chemical mergers and acquisitions (M&A) world right now and for the past six months is about the rebound of deals in size and volume through most of 2010 and if it should continue into 2011. Chemical M&A advisors in the first quarter 2011 tended to say the recovery would continue as the chemicals sector strengthened and the economic recovery gained momentum. However, there are some who suggest a more tempered look at the medium term for M&A activity in general and for those chemical companies who would look to benefit from this growth with the help of a chemicals M&A firm.

The predominant factors that chemicals M&A experts offered at the close of 2010 for why 2011 should see a further increase in M&A activity were; first, increased – compared to 2009 – and continually increasing CEO confidence, which many saw as at the center of the momentum swing down in 2008 and return to action in 2010. This confidence would promote more and bigger deals; and second, lots of free cash on the balance sheets of big companies combined with a recovering credit market that would facilitate making big deals. These two forces had a significant impact in 2010 and some think are like to increase in strength in 2011. The other argument posed has to do with the prices of commodities and material inputs.

For most of 2010, the buzz word was “international currency war,” the name that the Brazilian finance minister gave to a combination of circumstances where Chinese fixed exchange rates and high demand for commodities, and ungenerous monetary policy in the United States and other advanced economies combined to artificially inflate the value of many commodity-exporting countries’ currencies. Coupled with economic recovery that naturally increased demand for material inputs, this tended to push up the price of inputs in such a way that many worried 2010-level profits would not be possible in 2011.

Some chemical M&A advisors argued that as Chinese monetary policy has begun to relax and some modicum of currency agreement has been reached, chemicals sector growth and M&A activity will face only minor headwinds in 2011. They further suggested that as more big chemicals firms reenter the M&A market looking for potential targets, the deal timeline will become much shorter under increased bidding competition, which will exert further upward pressure on the demand for chemicals M&A firms.

Yet some cautioning of this view is warranted, as the Chinese housing bubble and sluggish U.S. recovery – and potential double-dip recession? – threaten the possibility of a similar confidence-undermining economic event in the second half of 2011 or early 2012, which would throw off the predictions of the more optimistic chemicals M&A advisors.

Many chemical mergers and acquisitions advisors predict continued or even expanded growth in the sector and m&a in the near and medium-term. Get help evaluating this potential trend at valencegroup.com