Chemical M&A to Catch Up With Drugs, Manufacturing RushAndrew Noel
The pace of mergers and acquisitions in Europe’s $1.1 trillion chemical industry is poised to catch up with the bonanza of deals seen in areas such as drugs and manufacturing gear.
“The last few months have already seen a number of deals and approaches elsewhere but chemicals have lagged behind,” said Martin Evans, an analyst at JP Morgan. “A catch-up is likely in 2014, 2015.”
BASF SE, the world’s largest chemical company, has potential firepower of as much as 25 billion euros ($35 billion) for dealmaking, if it were to increase net debt to earnings to as much as three times, Evans said. On that basis, Evonik Industries AG has as much as 9 billion euros, and Yara International ASA has 57 billion kronor ($9.6 billion), he said.
Western European buyers announced $149 billion of acquisitions in the first three months of the year, a nearly 60 percent gain over the start of 2013 that outpaces the increase from North America and Asia, data compiled by Bloomberg show. Led by telecommunications, media and technology companies, the value of announced acquisitions worldwide rose about 26 percent to $637 billion, the best start to a year since 2007 -- before the global financial crisis.
Driving M&A spending is a push to diversify away from commodity chemicals, along with improving economic data for Europe, lower organic growth rates and a diminishing scope for self-help measures to cut costs, Evans said.
“The U.K. has been a happy hunting ground, historically,” Evans said. Elementis Plc, Croda International Plc, Johnson Matthey Plc and Victrex Plc all have strong franchises and good performance records, albeit with a desire to expand independently, he said.