BUSINESS
SLOW MERGER ACTIVITY IN FIRST HALF OF 2002 Buyers are unwilling to pay high prices, and sellers are reluctant to sell cheap
ingyear of 1999, they were responsible for nearly 25% of the deals completed in 2001. Raising funds for an acquisition can be as difficult for a financial buyer as for any industry buyer. For example, Lonza had arranged to sell its polymer intermediates business earlier this year to PPM Ventures, the private equity arm of British financial company Prudential. But in May that deal fell through, and Lonza reached a deal to sell the business to Bear Stearns Merchant Fund Corp. That deal subsequently fell through as well (C&EN, July 22, page 15). It's more of a buyer's market now than it has been in recent years because valua tions have come down. Plenty of busi nesses are up for sale. For instance, DuPont plans to sell or spin off its textiles and in teriors business, which has annual sales of about $6.5 billion. Roche's $2 billion-ayear vitamins business is on the block, as is Bayer's household insecticides business, with sales of $350 million.
business, and Solva/s $1.2 billion buy of Ausimont. The other two were General Electric's acquisition of BetzDearborn for $1.8 billion and Johnson Wax Profession al's takeover of institutional and industri al cleaning products maker DiverseyLever soon. Peter Young, president of the invest for $1.6 billion. ment banking boutique Yning & Partners, Europe accounted for most deals in the saw the start of the trend early this year first half of 2002-45% versus 41% for when he completed his 2001 survey of the U.S. —simply because of more re chemical industry merger, financial, and structuring activity among European strategic trends. Young found that, al companies, Young says. The Europeans, though the 79 mergers completed in 2001 he explains, started to restructure their were near the 1999 peak of 82, activity was businesses much later than U.S. compa markedly slower in the second half: Chem nies, and they've got a way to go to catch BUT SOME BUSINESSES that were up for ical companies completed only 31 merg up. Mergers and acquisitions in other re sale have been withdrawn, in part because ers, versus 48 in the first half. gions of the world accounted for only 14% the buyer and seller couldn't agree on a deal. In one example, International Paper In Ybung's latest survey covering the first of deals between January and June. half of 2002, the number of $25 millionThe large deals mask the fact that many decided in June not to sell pine chemical plus chemical deals slowed even further, of these businesses are selling for less than company Arizona Chemicals. It had been to just 29. they would have two years ago. Poor busi up for sale since November 2000. The value of mergers and acquisitions— ness conditions and low profits have hurt The dollar volume ofmergers is difficult which slipped from $39 billion in 1999 to valuations of chemical companies. Prices to predict and "is heavily dependent on $35 billion in 2001—continued to whether a relatively small number fall in the first half of 2002 as well. oflarge transactions occur or do not GOING DOWN From January to June, the value of occur," Y>ung says. Large transac Deal volumes are nose-diving this year transactions was $16 billion, versus tions now pending include Bayer's $27 billion in thefirsthalf of 2001. $1.7 billion sale of its Haarmann & No. of transactions Companies completed mergers Reimer flavor and fragrance busi 100 worth only $8 billion in the second ness to equity funds group EQT, and 80 half of 2001. German energy concern E.ON's 60 plan to sell a controlling interest in "Some of the drop in merger ac Degussa to compatriot RAG, a coal tivity" Young explains, "is due to the 40 1 1 I I I I I I 1 mining and engineeringfirm.RAG lagging effect of the Sept. 11,2001, 20 expects to spend $3.6 billion on the terrorist attacks; the global economic 0 transaction by 2004. slowdown; and the desire of man 199192 93 M 95 96 97 98 99 00 01 First half agement to focus on the profitabili Largely because of the credit 01 02 SOURCE: Young & Partners ty of their existing businesses." crunch, Yning believes mergers will Another important reason for continue at about 60 deals ayear for the decline in activity is that many buyers that buyers are willing to pay for basic the near-term future, a relatively low level have just given up on business acquisitions chemical businesses have declined from a compared with the 1999 to 2001 period for now, Young says. And then tighter cred high of more than 11 times earnings before when buyers completed about 80 deals a it has also made it difficult, particularly for interest, taxation, depreciation, and amor year. But competitive pressures will keep the "financial" buyers such as investment bank tization (EBITDA) in 2000 to 7.8 in the number of deals up compared with the last ing houses, to borrow funds. first half of 2002. Specialty chemical val chemical economic trough, when 33 deals That doesn't mean money isn't available uations have fallen dramatically since the were completed in 1991 and 26 in 1992. to make a deal. Five large transactions rep 1999 peak of 13.9 times EBITDA, Young European companies will continue to resented more than 80% of the total dol says, to 8.3 in the first half of 2002. restructure; U.S. and Japanese companies lar value of deals in the first half of 2002, With valuations so low, "financial buy will focus on consolidation. And Young Yning says. Three of those were in Europe: ers continue to expand their role both in predicts that "large transactions will be less Bayer's $6.6 billion acquisition ofAventis the U.S. and in Europe," Young notes. frequent as acquirers focus on buying busi CropScience, Saudi Basic Industries' $1.8 While financial buyers accounted for 5% nesses that fit strategically in their port billion purchase of DSM's petrochemical of deals completed in the peak deal-mak- folio."—MARC REISCH HE CREDIT CRUNCH AND ECO-
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nomic slowdown are taking their toll on merger and acquisition activity, and the deal-making is not expected to pick up anytime
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