M&A Trends In Chemical Material & Food
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M&A Trends In Chemical Material & Food

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The scope of this research service includes 2,436 mergers and acquisitions (M&As) over the period 2000 to May 2009. Macro-economic factors, end-user analysis, and outlook till December 2009/April ...

The scope of this research service includes 2,436 mergers and acquisitions (M&As) over the period 2000 to May 2009. Macro-economic factors, end-user analysis, and outlook till December 2009/April 2010 are opined. In the study, Frost has covered 30 segments and the M&As trends are classified based on time, segments, deal size, geography, type of acquirers, and integration. Furthermore, iterations such as classification based on \'time, segments, and deal size\', \'geography, time, and type of acquirers\', among others, are analyzed

The objective of this research service is to provide financial analysts, investment professionals, and market participants the tools and information needed to support financial analysis and investment decisions.

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    M&A Trends In Chemical Material & Food M&A Trends In Chemical Material & Food Document Transcript

    • Light at the end of the Chemicals Material & Foods Tunnel for M&A In the study, Frost has covered 30 segments and the M&As trends are classified based on time, segments, deal size, geography, type of acquirers, and integration. Furthermore, iterations such as classification based on 'time, segments, and deal size', 'geography, time, and type of acquirers', among others, are analyzed Analysis by Time Analysis of deals by quarters highlights the increased incidence of mergers and acquisitions (M&A) in 2009 Q1, but the average deal size was $65.7 million ($138.4 million in 2008 Q1). By comparing 2009 Q1 with 2005 Q4, which had nearly the same number of deals, the average deal size was $213.5 million. Hence, the average deal size has declined, as the companies and financial institutions are focusing on smaller deals. In 2009 Q2, the growth in number of deals declined by 23.5 percent compared to 2008 Q2. Key Takeaway: Declining average deal size due to uncertainty in recovery during September 2008-May 2009. Chart 1.1 depicts the deal volumes by time and average deal size by quarters in the world chemicals materials and foods industry over the period 2000 to May 2009. Chart 1.1 Mergers and Acquisitions in Chemicals Materials and Foods: Deal Volumes by Time and Average Deal Size by Quarters (World), 2000-May 2009 180 1600.0 Maximum number of deals in recessionary period, though 160 of small average deal size. 1400.0 Deals by Quarter Year over Year by Quarters 140 1200.0 Average Deal Size ($ Million) 120 1000.0 100 800.0 Deals (x) 80 600.0 60 400.0 40 20 200.0 0 0.0 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Quarter Source: Frost & Sullivan
    • Analysis by Integration It is observed that M&A in companies and distribution has a 63.4 percent correlation. Distribution as a percent of total acquisitions witnessed an increase to 8.2 percent till May 2009, as compared to 6.3 percent in 2008. Companies' buybacks accounted for 3.8 percent of the total M&A in 2008 (2.5 percent in 2007 and 1.2 percent in 2006). The chemical companies have limited opportunities with their current ratings for undertaking larger debt-financed transactions. In addition, liquidity is a concern due to the financial covenants of their loans. Key Takeaway: in the last quarter of 2009, with signs of recovery, Frost & Sullivan expects company buy-backs to be a leading indicator of the chemical and material demand recovery. Analysis by Deal Volume & Deal Size The deals are classified as less than $100 million (<$100 million), $100 to $500 million, $500 to $2,000 million, and greater than $2,000 million (>$200 million). The deal volume, deal size, segments, and time periods (2000 to 2003, 2004 to 2006, 2007 to 2008, and May 2009) are studied. The number of billion dollar M&As was less over the period 2008 to May 2009. Over 85.7 percent of the M&As were below the $100 million range in April-May 2009. If compared with the earlier years, the deals below $100 million in 2004-2007 accounted for approximately 57 percent of total M&As as against 73.6 percent during 2000-2003. Key Takeaway: during the period 2005 to 2007, the private equity companies were driving up the multiples. As the private equity firms are finding it difficult to raise capital (173 private equity funds raised $54.9 billion in 2009 H1, which was 64 percent less than the $152.7 billion raised by 261 funds during 2008 H1), this presents the best time for strategic buyers due to low EBITDA multiples. Chart 1.2 presents the deal volume and average deal size by months in the global chemicals materials and foods industry during 2000 to May 2009.
    • Chart 1.2 Mergers in Chemicals Materials and Foods: Analysis by Average Deal Size (World), 2000- May 2009 Average Deal Size ($ Million) 50.0 Average Deal Size ($ Million) 45.0 300.0 40.0 250.0 35.0 30.0 200.0 25.0 150.0 20.0 15.0 100.0 10.0 50.0 5.0 0.0 0.0 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Quarter <100 million 101-500 million Average Deal Size ($ Million) 2500.0 20000.0 Average Deal Size ($ Million) 2000.0 16000.0 1500.0 12000.0 1000.0 8000.0 500.0 4000.0 0.0 0.0 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Quarter 501-2000 million >2000 million Source: Frost & Sullivan Analysis by Acquirer Profile The financial institutions such as alternative financial investments, asset management, banks, brokerage, insurance, and other financials including the private equity firms accounted for approximately 24.9 percent of the total acquisitions during the period 2000 to May 2009. The private equity investors accounted for 18.3 percent of the total investments. In 2008, private equity accounted for only 5.1 percent of the total deals. Key Takeaway: with the lower effective Fed interest rate, reducing Libor-OIS spread and improvements seen in the outlook of the bankers worldwide (Senior Officers Loan survey), the financial institutions and strategic buyers are expected to be more aggressive in the Q1 2010. Till then, focus on deals lesser than $100 million is likely to be predominant. Analysis by Geography Approximately 20.3 percent and 26.2 percent of the deals were found to be in North America during 2008 and January to May 2008, respectively. The BRICS countries
    • accounted for 5.7 percent of the overall target companies in 2007, as compared to 20.5 percent in 2009. Traditionally, among the target companies, companies of Germany, the United Kingdom, France, and the United States accounted for a majority of the share. Key Takeaway: Companies with strong cash flow based in BRIC countries are expected aggressively consolidate their position in their domestic market in the last two quarters of 2009. Analysis by Segments Traditionally, specialty and diversified chemical firms have used M&A as a growth vehicle in the global markets. Acquisition targets in Europe and North America had the aim to expand the business product portfolio, customer base, and technology division. In contrast, Asian M&As were aimed at facilitating geographic presence in emerging markets, and these were smaller deals. During the period 2005 to 2008, specialties were valued higher as they were less affected by cyclical downturns and have greater ability to maintain margins and hence stable earnings Key Takeaway: Segments such as adhesives and sealants, personal care chemicals, pharmaceutical fine chemicals, water treatment chemicals, agricultural chemicals, and industrial gases are expected to maintain the level of M&A activities Chart 1.3 highlights the deals volume split by segments in the world chemicals materials and foods industry during 2000 to May 2009.
    • Chart 1.3 Mergers and Acquisitions in Chemicals Materials and Foods: Deal Volumes Split by Percent by Segments (World), 2000-May 2009 100.0 90.0 80.0 70.0 60.0 Split (%) 50.0 40.0 30.0 20.0 10.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009 Year A&S AC&F API Bio Cat P&CA CP CC CM CPC Elas E&EM EC EP Enzy F&B FA HPP GAS I&C L&G O&MC Pack P&C PCC&HC PE PA PEM P&P RC TA WTC Source: Frost & Sullivan About the study: The scope of this research service includes 2,436 mergers and acquisitions (M&As) over the period 2000 to May 2009. Macro-economic factors, end-user analysis, and outlook till December 2009/April 2010 are mentioned. The objective of this research service is to provide financial analysts, investment professionals, and market participants the tools and information needed to support financial analysis and investment decisions. For further details, please contact Lori Salazar-Malone Andrew Calvert North American Sales Director Europe Sales Director Business & Financial Services VP, Business & Financial Services t) 1 210-247-2448 t) 44 (0)20 7343 8373 e) lsalazar-malone@frost.com e) andrew.calvert@frost.com