*Approximate number of announced deals (regardless of size) that involve North American chemical businesses, in whole or in part. This is not a comprehensive list, but does approximate total industry deal flow.

Deal Flow Relatively Stable

While the weakening economy did have an impact on chemical industry deal flow over the past few quarters, another way of interpreting the data summarized in the chart above is that deal flow in the industry is a relatively stable phenomenon.

The chemical industry has seen a steady stream of deals, with the number ranging between 200 - 300 per year over the past 5 years.

While certain industry segments and certain companies within the industry will blow hot and cold, when it comes to doing deals, the overall figures are relatively stable.

In the article that follows, we will explore this subject in more detail.


Chemical Industry Deal Flow

Overall Deal Flow Steady

The chart on the first page can be looked at in 2 ways:
  • The slowing economy had a noticeable effect on industry deal flow beginning late last year, cutting it by roughly 15%.

      or

  • Deal flow in the chemical industry is largely impervious to the economic cycle, with deals consistently clipping along at a 200 - 300 per year rate.


Is the glass half full or half empty?

It is our feeling that the second view is the better one. There are many reasons why companies decide to sell, and many reasons why companies decide to buy. The overall economic climate is rarely one of these reasons.

While certain segments of the chemical industry consolidate via acquisition, there are scores of chemical companies springing up and growing in segments of the industry that are highly fragmented. At the same time that Dow is buying Union Carbide, there are so many smaller, younger chemical businesses growing and becoming attractive acquisition candidates. And for every mega merger like Dow and Carbide, there are often the inevitable spin-offs, like Dow's divestiture of its ethyleneamines business to Huntsman and its ethanolamines business to Ineos. And of course there will always be chemical companies such as Huntsman and Sovereign that are born via acquisition. The chemical industry is in a state of constant flux, and because of this, deals have always been done at a steady clip.

Segments and Companies Can Blow Hot and Cold

As mentioned earlier, while the overall industry has a steady stream of deal flow, certain segments of the industry, and certain companies, can be very hot or very cold.

    A good example of a company "hot" on the acquisition trail today is Dow. The acquisition of Union Carbide that just closed is but one of a string of deals in the last year or so - Dow bought Angus, General Latex, and Hampshire Polymers, among others last year. And in just the first quarter of this year, Dow has announced deals to buy Rohm & Haas' agrochemical business, Reichhold's carpet and paper latex business, and Ascot, a fine chemicals/custom manufacturing business. Companies which embark on a buying spree such as this inevitably will slow down sooner or later or even stop doing deals for a period of time, as they enter into a phase where they digest/integrate what was acquired.

    Other examples of companies that have been very active doing deals in the past, but have now quieted down are Goodrich (Freedom Chemical, CH Patrick, Clark Chemical in '97 - '98), Airgas (scores of acquisitions of small gas businesses), and ICI (a series of divestitures - like TIO2, acrylics, chloralkali and petrochemicals - and acquisitions - like Unilever's Quest, Uniqema and National Starch - that transformed the whole company).

And just as a company can be hot on the acquisition trail for a period of time, so can an industry segment see a flurry of activity.

    Fine Chemicals - This segment has seen a burst of activity over the last year and a half. Clariant buys BTP. DSM buys Catalytica. Rhodia buys Chirex, Degussa buys LaPorte, and now Dow buying Ascot. A lot of action in an industry segment that saw very little activity a few years ago.

    Others - The chemical distribution business has been hot for the last few years, with Ellis & Everard being probably the most active, and now just being acquired itself by Vopak. Brenntag has also been very active. In water treatment, we saw Betz buy Dearborn, then Hercules buy BetzDearborn. And last year we saw Suez Lyonnais buy both Nalco and Calgon.

Hot and Cold Countries - Looking at acquisitions from a geographic standpoint, the last few years has seen many of the large UK chemical companies be acquired. And while the Japanese were very active acquirers in the late 80's, they were very quiet in the 90's.

With an industry such as this, it is hard to imagine that a time will come when there isn't this constant churning of business.