The Timing of an Acquisition or Divestiture Can Make All the Difference The history of Cytec, trading in the lowly $5 range in its infancy in 1994…… then ramping up to a high around $58 earlier this year…… and recently dropping precipitously to as low as $15, illustrates how important timing can be in the world of acquisitions and divestitures in the chemical industry. For those who are in chemical businesses where values swing significantly, and for those who desire to be, the timing of a deal is very often a major factor that will determine whether the transaction will be a success or a failure. Consequently, it is imperative to closely examine where a business is within its cycle. In the article that follows, we will explore this issue from both the buyer’s and the seller’s perspective. Timing The recent decline in the stock market has hit many companies in the chemical industry hard. Cytec, as noted on the cover, has been hit particularly hard, as have many others, including the 4 illustrated on this page (high-low prices for these 5 companies are as of October 6). The point here is not to look back and say an acquisition or divestiture should have been made at the trough or the peak, depending on whether you are the buyer or the seller. That is 20-20 hindsight. Nor is the point to focus only on publicly traded chemical companies. The value of private chemical companies or parts of public chemical companies can swing just as wildly as public companies. The point for any buyer or seller of a chemical business to bear in mind when contemplating a transaction is that when you do a deal can be absolutely critical. In the chemical industry there are many businesses that are cyclical in nature and therefore need to be evaluated with a full understanding of this aspect of the business. In addition, with respect to public chemical companies, there is also cyclicality inherent in the stock market, which also needs to be taken into account, even if the business itself is a relatively stable one. It is not uncommon for ownership to hold a business while things are running smoothly and then decide to sell when problems arise. While this is a natural tendency for many, it will necessarily bring about a lower price. On the other hand, from a buyer’s perspective, it may be worthwhile to seek out businesses when times are tough in order to get a lower price. The perception of the value of a business is often clouded by a tendency to overemphasize the strengths of the business when times are good and to minimize its weaknesses. This "halo effect" also exists in the reverse. When times are bad, there can be a tendency to minimize strengths and future prospects and to overemphasize the negative. This can therefore lead to an overvaluation in good times and an undervaluation in bad times and savvy buyers and sellers use this to their advantage.