Strategic buyers lead chemical M&A revival - report
Mergers and acquisitions (M&A) activity in the global chemicals industry surged following the recession, driven by interest from strategic buyers in the specialty chemical sector, according to a report issued Wednesday from Fitch Ratings.
The bulk of the transactions involved strategic buyers, who pursued a broad array of strategies, including company-wide transformation, bolt-on acquisitions, geographic expansion into emerging markets, helping players from emerging markets gain a foothold in developed markets, sector exits, costs synergies, and gaining breakthrough critical mass or access to technology.
The increase in transaction values is also driven by the return of several sizeable acquisitions in the multi-billion dollar range, according to Fitch.
Financial buyers pursued some deal activities in the chemicals industry. However, those activities remain limited in terms of volume and number of deals.
M&A activities were particularly strong in the specialty chemicals sector. Given the dominance of strategic buyers, these deals create sizeable specialty chemicals companies and increase industry concentration.
M&A remains a key rating driver. Many Fitch-rated North American chemicals companies are currently, or were recently, involved in M&A transactions, the firm said.
The size, structure, and outcome of the deals may directly or indirectly affect the companies' ratings and outlooks.
Fitch said it takes positive rating actions if an M&A deal improves the operating profile of the chemicals company or if the acquirer has a better credit profile than the Fitch-rated chemicals company on a stand-alone basis and the credit quality of the acquired company is expected to migrate towards that of the acquirer.
In most cases, however, M&A is one of the key risks to an acquirer's credit profile, particularly if a large transaction or a series of deals meaningfully increases leverage or comes with substantial integration or execution risk.
The full report is available at the Fitch website.
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