Demand for chemical companies could recover soon as Asian and Middle Eastern companies take aim at targets in the industrialised world, a chemical industry consultant at Pricewater-houseCoopers (PwC) said.
Mergers and acquisitions have dried up during the economic crisis, and the downturn in the chemical industry, described by veterans as the worst they have experienced, has brought many sellers to the table but few buyers.
However, a recent PwC poll of more than 1,000 company chief executives shows that about one in three CEOs at global chemical companies are eyeing cross-border acquisitions over the next 12 months, compared with just one in four across all industries.
Volker Fitzner, who co-ordinates PwCs global advisory service for chemical companies, told Reuters on Wednesday that companies from Asia and the Middle East could emerge as key buyers, but deals would initially be small or medium-sized. "Middle Eastern companies have access to the raw materials. Thats their asset. They are now keen to expand upstream into specialty chemicals, where you have to be closer to the customers and where acquisitions in Europe or the US could be helpful," Fitzner said.
Middle Eastern chemical groups, such as Saudi Basic Industries, have invested heavily in petrochemical plants close to oil refineries around the Gulf. "Its safe to assume they have the financial clout because of the good cash flow from petrochemicals."
Asian companies, in turn, could become suitors because many of them are government controlled and therefore less reliant on financial markets for their funding. "The Chinese government is trying to advance its specialty chemicals companies strategically," said Fitzner.
The head of ChemChina Group, which in 2006 bought Rhodias silicones unit, was quoted in PwCs survey as saying the Chinese chemical maker saw buying opportunities during the downturn. The drive among players in the industrialised world to hive off low-margin mass chemicals is at least partially matched by demand, even though some plants will have to be closed, Fitzner said.
"There are companies in the area of base chemicals where size is key, and thats where we will see some buyers," who are eyeing cost advantages by adding capacity, he said. Companies have so far been struggling to find buyers for their chemical units.
Hexion pulled out of its planned take-over of chemicals peer Huntsman Corp in December, and Dow Chemical only agreed to go through with its purchase of Rohm and Haas after getting concessions. European specialty chemicals makers, including BASF and Bayer, have ruled out large take-overs as they grapple with capacity overhang, and BASF is trying to sell off its low-margin leather and textile chemicals unit as well as its styrenic plastics businesses.
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