Economic distress in chemicals spells acquisition opportunity

By Guy Montague-Jones

- Last updated on GMT

Hidden gems lurk under the surface of chemicals for those prepared to ferret them out, according to Kline & Company.

The research and consultancy firm said the economic crisis has changed the face of the chemicals business leaving in its wake a range of acquisition opportunities.

In the current economic climate many companies are looking to sell assets on the peripheries of their businesses and some desperately need to sell to avert financial disaster.

Large chemical firms created through multiple mergers are now weighed down by high debt and need to raise cash by selling assets. Other sales are likely to come from divestment requirements pushed on recent mega deals such as the BASF acquisition of Ciba and the Dow Chemical purchase of Rohm and Haas.

Eric Vogelsberg, Snr VP, management consultancy, at Kline told that a “bunker mentality” has emerged in the recession and companies need to put their heads above the parapet to see the opportunities available.

Vogelsberg said financing constraints are likely to rule out major deals but self funding and private equity options are open to companies prepared to capitalize on the plethora of opportunities for small bolt-on and mid market acquisitions.

He predicted that the greatest activity would be in the $300m to $600m price range with product lines, small private companies and small divisions of major firms being the main targets.

Beauty chemical firms are likely to be of particular interest to prospective buyers because they are under less economic pressure than other chemical businesses. Vogelsberg cited the Rhodia acquisition of the US McIntyre Group as an example of the sort of deal that is set to become more commonplace in the new economic environment.

While the cosmetics industry is relatively well insulated from the recession, Vogelsberg said not every cosmetic business is a good deal.

He said being able to identify, seek out and secure attractive deals is crucial. Kline & Company helps companies develop M&A strategies, drawing on its experience in research and management consultancy in cosmetics and chemicals.

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