Chemicals

M&A activity played a key role in the chemicals industry in 2008, with 869 deals totaling $54 billion. That compares to 853 deals a year earlier with a value of $119 billion. Encouraging news came in 4Q08 from the PricewaterhouseCoopers survey when 33 percent of industry CEOs said they are planning to complete a cross-border merger or acquisition during the next 12 months.

M&A deals in 2009 will likely include distressed companies wanting to raise capital by selling a division that doesn’t complement its core business function. Though there may be few buyers for those assets now, the companies that identify those assets and prepare to acquire them will be better off when economic conditions change.

Chemical firms have shut down high-cost plants and reduced their workforce in response to the decline in demand for their products in countries such as the United States. Instead, the firms are moving some of their operations to other low-cost plants in developing countries where demand for their products is higher and operational costs are lower.

Chemicals CEOs are also worried about the impact of the global banking crisis, according to the 4Q08 survey conducted by PricewaterhouseCoopers. The survey shows more than two-thirds of the executives anticipate high financing costs, causing them to delay some of their investments.

At the same time, executives are taking a long-term approach to their problems partly because the chemicals industry is capital intensive with long product life cycles. They are maintaining their focus on research and development as CEOs view new products or services as critical to the long-term success of their firms.

Sources
Chemical Compounds: Fourth Quarter 2008 Mergers & Acquisitions Analysis, PricewaterhouseCoopers.