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A study o Industrials & ChemicalsM&A activity by mergermarket,in association with Squire Sanders
GLOBAL
M&A SERIESINDUSTRIALS& CHEMICALS 2012
Published by:
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GLOBAL M&A SERIES – CONTENTS
CONTENTS
Foreword 03
Industrials & Chemicals Overview 04
M&A Spotlight: Chemicals & Materials 13
Q&A: Cipriano Beredo, Squire Sanders 18
About Squire Sanders 20
About mergermarket 22
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
On the whole, 2011 and the start o 2012 have
marked an encouraging rebound rom some
exceptionally dicult years. Globally, deal value
reached US$354.7bn – the highest annual level
on record since 2007 – driven by companies’ cross-
border expansion eorts, private equity exit activity
and lingering distress in the manuacturing and
automotive industries.
Internationalisation o business played an
important role in boosting the volume o cross-border deals, which are
coming to represent an ever-larger slice o total M&A. In 2011, 42% o all
announced deals were cross-border in nature, up rom 40% in 2010 and just
37% in 2009. Looking at the rationale behind some o these transactions
brings these gures to light: the acquisition o US-based Thomas & Betts
Corporation (TNB) by Swiss industrials group ABB Ltd, or example, aimed to
strengthen the acquirer’s presence in the North American market, whilst the
US$6.4bn acquisition o French chemical giant Rhodia SA by Belgium-based
Solvay SA is ocused on growth in emerging markets. Even domestic deals
had an international favour in 2011: the $4.6bn acquisition o Solutia Incby Eastman Chemical Company in the US is a case in point, as the combined
entity will pursue aggressive expansion into the Asia-Pacic region.
Multi-billion dollar mergers notwithstanding, the heart o the industrials
& chemicals market seems to lie in the mid-market. Small to medium-sized
businesses still orm the backbone o the US economy and the German
Mittelstand, and this is clearly refected in the numbers. Deal making in the
US$15m to US$500m range rose by over 18% rom 2010 to 2011, and two-
thirds o all deals announced in 2011 came rom the US$5m to US$100m range.
Looking at specic segments o the industrials & chemicals market, industrial
products and services is the most active subsector by ar, with 1,230 deals
valued at US$168bn, ollowed by chemicals and materials with US$43bn.
Chemicals and materials deal announcements were up over 16% in 2011
compared to 2010, making it one o the astest growing industry subsectors
over that period.
Industrials & chemicals is an expansive sector, covering a broad range o
industries – industrial products and services, industrial electronics, industrial
automation, chemicals and materials, manuacturing and automotive –
meaning it will always be among the liveliest markets or M&A. This report
seeks to unpack the sector’s various dierent parts to uncover the key
drivers, challenges and opportunities that characterise the market today.
We hope you nd this second part o our Global M&A Series both useul
and inormative, and as always we welcome your eedback.
William Downs
Partner
Global Practice Group Leader, Corporate and Corporate Finance
Squire Sanders
Welcome to the second report in Squire Sanders’ Global M&A Series. Here we examine thedriving orces behind M&A in the global industrials & chemicals sector, with a detailed reviewo specic industry subsectors and a spotlight eature on chemicals and materials transactions.
FOREWORD
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
Merger activity in the industrials & chemicals space
has closely mirrored trends in the global business
cycle in recent years. The post-crisis recovery
in economic growth saw a revival in industrials
& chemicals dealmaking, which peaked in 2011
– even amid the sovereign debt market jitters
– with 2,692 transactions collectively valued at
US$354.7bn coming to market, marking the highest
yearly level o aggregate deal value since 2007.
Small- and mid-sized industrials enterprises orm
a cornerstone o the global economy and the
mainstay o the sector’s deal market: transactions
in the US$15m to US$100m deal size segment
accounted or every two in three announced deals
with a disclosed value in 2011. Clearly, the nancial
health, growth ambitions and access to capital
or small- and mid-sized enterprises (SMEs) is
crucial or the vitality o the overall industrials &
chemicals deal market, but the headline-grabbing,
transormational tie-ups and takeovers brokered by
the world’s largest industrial groups have also been
a key eature in the post-crisis M&A landscape. In
2011, the number o transactions valued at US$1bn
or more rose by 13% to the highest level in ouryears at 60 transactions.
The stronger corporate appetite or large-cap M&A
has been a boon or vendors and private equity unds
looking to dispose and mature portolio assets have
not been let out in this regard. In total, there were
307 exits worth US$69.3bn undertaken last year,
accounting or 20% o overall industrials & chemicals
deal value and the highest annual value or exits in
the sector tracked by mergermarket.
Some o these deals were blockbuster divestments
with large industrial packaging groups on the buy-
side, including Blackstone’s sale o Pennsylvanian-
based Graham Packaging or US$4.3bn to New
Zealand’s Reynolds Group Holdings and Clayton,
Dublier & Rice’s exit rom Wisconsin-headquartered
Diversey Holdings to New Jersey’s Sealed Air Corp
or US$4.3bn; these two transactions rounded o
the top 10 deals undertaken globally in the sector
between Q2 2011 and Q1 2012.
Fresh investments into industrials & chemicals
companies by buyout houses also proved robust
with transaction activity and value growthoutpacing the sector as a whole by posting
increases o 25% and 44% to a total o 495
transactions worth US$42.2bn. The largest buyout
Industrials & Chemicals M&A trends
INDUSTRIALS & CHEMICALS OVERVIEW
N u m b e r o f d e a l s
V a l u e o f d e a l s U S $ m
Industrials & Chemicals deal size splits by year
N u m b e r o f d e a l s
Industrials & Chemicals deal size splits by quarter
N u m b e r o f d e a l s
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
Top 10 Industrials & Chemicals Deals Q2 2011 - Q1 2012
Private equity exits
N u m b e r o f d e a l s
V a l u e o f d e a l s U S $ m
Private equity buyouts
N u m b e r o f d e a l s
V a l u e o f d e a l s U S $ m
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
saw Bain Capital and Hellman & Friedman club
together to move on the Swedish alarm solutions
manuacturer Securitas Direct in a US$3.3bn
secondary buyout rom Sweden’s EQT.
Bain was also active in the automotive space,
which witnessed a brisk uptake in private equity
investment last year as the number o buyouts
rose by more than hal to 61 deals, while total
value rose more than three-old to US$4.7bn. Bain
teamed up with GIC, the Singaporean sovereign
wealth und, through its BC India Private Investors
II und to invest US$999m or an undisclosed
stake in Hero Investments, the Indian investment
holding company with interests in motorcycle
manuacturing. Hero Investments used part o the
proceeds rom its private equity backing to pay
down debt ater acquiring a 26% stake in Hero
Honda Motors rom Honda Motor Co or US$853m.
Industrials & chemicals industrysnapshots
Industrial products and services
Industrial products and services, the largestsubsector with 1,230 transactions worth
US$168bn registered in 2011, was a bulwark or
dealmaking. The tailwinds o strengthening actory
output in industrial powerhouses such as the US and
Germany, as well as the momentum o a tentative
global economic recovery, helped sustain deal fow
throughout the year with a high o 331 transactions
brokered in the ourth quarter (the highest level
since mid-2008) even in the ace o increased
economic volatility in the second hal o the year.
Iron and steel producers, which have seen a rapid
spree o consolidation ollowing the drought o
deal activity during the crisis period, saw the
largest industrials & chemicals deal o the Q2
2011 to Q1 2012 period come to market with
Nippon Steel taking over its rival Japanese
counterpart Sumitomo Metal Industries in a
US$22.5bn transaction. Whereas distress in the
wake o the crisis provided a spur to consolidation
in the past, steel manuacturers are now looking
at the burgeoning levels o output rom Chinese
rivals and combining to cut costs, gain synergies
and achieve greater competitiveness.
Chemicals and materials
Globally, there were 409 deals worth US$93.8bn
in the chemicals and materials subsector, with
INDUSTRIALS & CHEMICALS OVERVIEW
Subsector M&A volume
N u m b e r o f d e a l s
Subsector M&A value
V a l u e o f d e a l s U S $ m
almost hal o these taking place in North America.
This comes as little surprise given that the US
holds several o the industry’s global giants
including The Dow Chemical Company and E. I.
du Pont de Nemours and Company.
Businesses o this size and scope (or their
subsidiaries) have historically oered a steady
supply o asset sales and 2011 was no exception:
notable examples rom the year include the
US$340m sale o Dow’s polypropylene business to
Brazil-based petroleum based chemicals producerBraskem SA and the sale o Dow AgroSciences’
European dithane ungicide business to India-
based Indol Chemicals Company or US$50m.
The predominance o the US highlights the
chemical sector’s close ties to the energy sector.
High commodity prices and extended volatility
are at least partly refected in the sale o Dow’s
polypropylene unit, and more activity o this sort
could emerge in 2012. At the same time the
worldwide shale gas renzy has put the spotlight
on North America, where expansive shale plays
have spawned high hopes or inexpensive raw
materials particularly in the US.
ManuacturingIn the manuacturing sector, the shit o production
in labour-intensive industries rom advanced
economies to emerging markets such as China, has
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
done little to dampen the thriving M&A markets
o Western Europe. The region is by ar the most
active in terms o manuacturing, accounting or
roughly 40% o the 382 deals transacted globally
in 2011. With a strong backbone o SMEs active
in areas such as packaging, pulp and paper, printing
and binding as well as the production o business
products, hardware and textiles – particularly
within the German Mittelstand – it is not surprising
that small and mid-cap deals predominate in Western
Europe; the region garnered less than 15% o the
US$27.3bn in manuacturing deal value last year.
While manuacturing deal activity benetted
rom relative stability in the rst hal o last
year, distress in the textile, printing and other
manuacturing segments was more apparent
than in recent years: the number o insolvency-
related manuacturing transactions tracked by
mergermarket rose to the highest level at 26 deals
worth US$195m. The German economy, which
has been a buttress or the eurozone during a
time o pronounced uncertainty, had a number
o insolvency-related transactions in 2011 in
the textile and printing niches. The bankruptcyo schlott gruppe and subsequent sello o its
dierent divisions was one o the most prominent
examples o overcapacity in the print industry
and alling demand stemming rom technological
innovations and the Internet.
Automotive
Despite the prevailing uncertainty last year, the
automotive industry witnessed the astest rate
o increase in deal fow across the industrials &
chemicals space, rising by over 20% to 345 deals
worth US$31.3bn. The surge in private equity
investment was a boon or automotive sector M&A,
but while nancial investors such as Bain Capital
and GIC boosted transaction fows, consolidation
among big automotive players such as Volkswagen
and MAN, Fiat and Chrysler and transactions in the
Chinese market drove sector activity.
In the largest automotive deal last year,
Volkswagen upped its stake in MAN by 26%
to take a controlling share o the German truck
manuacturer or US$7.7bn. The deal sets the
stage or Western Europe’s largest carmaker,
which already owns several o the region’s bestknown brands such as Seat, Audi and Bentley, to
expand into the truck manuacturing space against
rivals such as Daimler and Volvo. Fiat, meanwhile,
Manuacturing M&A by Region
pushed into the North American market. Its chie
investment came as the company exercised call
options or a combined 24% stake in Chrysler Group,
spending a total o US$1.8bn to bring its holding in
the ormerly bankrupt US carmaker to 52%.
Across the Pacic in the world’s largest and astest
growing automotive market, China’s SAIC MotorCorporation acquired a number o auto component,
new energy and automotive service assets rom
SAIC Group or US$4.4bn. An established car market
in Japan with leading international carmakers
as well as rising demand or automobiles among
the Chinese and Indian populations have helped
to make the Asia-Pacic region the second largest
market or automotive M&A with 104 deals
worth US$14.9bn, behind Western Europe’s 131
transactions valued at US$18.1bn.
Industrial electronics
M&A in the industrial electronics niche was
busiest in the Asia-Pacic region, particularly
in China and Japan – although Taiwan, or
its economic size, is a booming market or
dealmaking. Across the world, industrial
electronics counted 197 deals worth US$18bn,
with the Asia-Pacic region accounting or 37%
and 41% o deal activity and value.
Deal activity has been driven by a number o
actors, including sector consolidation, strategic
acquisitions and portolio rationalisation by
electronics groups. Several o the sector’sheavyweights were active last year with Samsung
Electronics, Hitachi, Schneider Electric, General
Electric and Toshiba Corporation, all on the buy-
side o deals. Samsung acquired a 50% stake in
S-LCD Corporation, the South Korean LCD panel
maker, rom Sony Corporation or US$943m as the
Japanese electronics giant sought to monetise its
holdings in the rm and secure a steady supply o
LCD screens rom Samsung.
Another leading Japanese electronics rm,Hitachi, took control o its battery subsidiary or
US$465m, while France’s Schneider increased
its presence in the Chinese market with the
acquisition o Beijing Leader & Harvest Electric
Technologies, the country’s largest supplier o
energy eciency enhancing devices or electric
motors, or US$650m.
Private equity buyouts, which have declined rom
over one in ve o every acquisition in the sector
in 2007, now account or a paltry 9% o industrial
electronics M&A. Mature portolio companies are
now coming up or exit, however, and last year’s
two largest transactions saw private equity rms
on the sell-side. In the largest deal, Allianz Capital
Partners and a consortium o nancial investors
exited Landis+Gyr, the Swiss maker o energy
management products and services, or US$2.3bn
to the Toshiba Corporation, which is seeking to bee
up its energy management solutions business.
Elsewhere, the France-based investment group
Wendel exited Deutsch Group, the French maker
o electronic connectors or the aerospace and
computer sectors, to Switzerland’s TE Connectivity,the world’s largest manuacturer o electrical
connectors, in a US$2bn transaction. Wendel
backed the management o Deutsch Group in
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
a buyout o the rm in 2006 or US$1bn; the rm
will use proceeds o the sale to deleverage.
Industrial automation
With a total o 129 transactions announced worth
US$4.8bn, 2011 saw a 24% surge in deal volume
in industrial automation and a 33% drop o in
deal value compared to the previous year. Looking
more recently, deal fow in Q1 2012 matched
the same period last year with 35 transactions
announced globally, though aggregate value is
slightly depressed at US$637m compared to
US$947m in Q1 2011.
Behind the charge is Western Europe, where deal
fow increased by 68% rom 37 in 2010 to 62 in
2012 and total value rose by 50% rom US$1.1bn
in 2010 to US$1.7bn in 2011. This surge more
INDUSTRIALS & CHEMICALS OVERVIEW
M&A volume split by target dominant region M&A value split by target dominant region
than made up or fat activity in Asia-Pacic and
a decline in North America; although US companies
showed a continued appetite or European assets
with 12 deals worth US$353bn compared to 9 worth
US$388bn in 2010. Globally the number o cross-
border deals taking place in Q1 2012, at 57% o
total deal fow, marks the highest quarterly level
since the second quarter o 2008, when 61% o all
industrial automation transactions involved buyers
and sellers rom dierent countries.
Last year also saw an uptick in private equity
activity, which made up approximately one third
o all dealmaking activity in industrial automation.
The number and value o buyouts and exits rose
signicantly on the year prior so that total private
equity deal fow was up 72% and value up 13%.
A particularly positive indicator or the industrial
automation segment is a tripling in the number o
secondary buyouts in 2011 compared with 2010,
illuminating the abundance at present o latent value.
Regional perspectives
In volume terms, Western Europe remains the
top target region or industrials & chemicals
transactions globally, with two in every ve
mergers and acquisitions taking place in the
region. However, the scale o the North American
markets and the presence o some o the world’s
largest industrial groups have helped bolster its
aggregate regional deal value to the top place,
contributing just under 40% o total industrials
& chemicals deal value in recent times.
Notably, while the Asia-Pacic region has seen
a slight increase in its share o global deal volume
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
in the sector to almost a quarter, the region has
seen a much stronger rise in its share o global
deal value with an eight percentage point increase
comparing the periods 2005-2010 to 2011-present.
On the buy-side, the shake-up in the global
economy has seen substantial regional shits
in bidder activity. As a bidder region, North
America witnessed a strong increase, jumping
12 percentage points in its share o global
industrials & chemicals M&A value to account or
44% o the market. The Asia-Pacic region has
also seen a sharp rise in its share o deal value,
surpassing Europe to become the second largest
bidder market ater North America with a 29%
share since the start o 2011 to present rom 20%
historically. The uptick in transormational deals in
North America and Asia-Pacic has seen Western
Europe’s share o global industrials & chemicals
deal value shrink by 16% over the period even as
it remained the world’s most active area on the
buy-side with a 40% share o total bidder activity.
Cross-border
Growing competition in the global economy
is propelling ever greater numbers o strategic
and inancial investors to scout overseas
markets or new acquisition opportunities. In
the industrials & chemicals sector this trend
is much the same with multinationals looking
to break into ar-lung markets to reach new
customers, capture international innovation,
beneit rom greater productivity, better cost
structures and ast-growth markets with long-
term prospects.
M&A volume split by bidder dominant region M&A value split by bidder dominant region
Combined, these actors helped uel cross-border
transaction fows in the sector last year to the
highest level in recent years with 1,144 deals
valued at a combined US$137.1bn. Furthermore,
cross-border dealmaking increased as a proportion
o overall industrials & chemicals M&A, accounting
or 42% and 39% o deals announced in the year.
While the markets o the western world have
subdued economic growth compared to the rapidly
growing emerging economies, these countries
are still the top target markets or doing deals:
seven o the top 10 target markets over the past
18 months have been located in North America or
Western Europe. True, these markets remain top
destinations or deals – in part due to their more
mature deal markets – but they have been losing
ground to emerging markets in recent years with
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
INDUSTRIALS & CHEMICALS OVERVIEW
Industrials & Chemicals cross-border M&A trends
N u m b e r o f d e a l s
V a l u e o f d e a l s U S $ m
Cross-border share o Industrials & Chemicals M&A
% o
f o v e r a l l I n d u s t r i a l s & C h e m i c a l s M & A
their share o total industrials & chemicals M&A
alling rom 80% to 70% rom 2005 to the Q1
2011-Q2 2012 period.
On the buy-side, the picture is not much dierent.
Advanced economies are the top international
acquirers and US acquirers are the most impressive
in this regard. The number o outbound acquisitions
by US acquirers has nearly matched the number o
inbound deals and dollars spent by two to one since
the start o 2011.
Outlook
The outlook or industrials & chemicals M&A is
mixed across the dierent areas o the sector.
Despite a buoyant 2011, volatility associated
with the European sovereign debt crises has
aected global markets, making access to credit
more dicult and dampening the appetite or
M&A among some rms. Despite this general
backdrop or the dealmaking outlook, the picture
is heterogeneous across the dierent geographies
and industrial subsectors.
Globally, commodity and energy prices remain high
by historical standards, putting pressure on margins
or manuacturers dependent on these raw materials
or the production process. With businesses across
the board looking to cut costs in the ace o uncertain
demand, industrials rms acting as suppliers in
the lower part o the production chain may begin
to be squeezed urther by their clients.
These actors could spur consolidation in mature
industries acing low growth or decline such
as automobile manuacturing in Europe, where
buyers with deep pockets rom the US and China
are tipped to be prime bidders or quality assets
coming to market. US carmakers, which remain
in a relatively good position due to Washington’s
provision o unding during the crisis in 2008
and 2009, are well placed to move on these
opportunities. Players rom China will also be
interested in acquiring the technology, skills and
intellectual property o overseas brands.
Industrial automation has been aected by high
energy prices and demand too, with increasing
consolidation in the pumps and valve segment drivenby heightened demand or fow control products.
Propelled by this buoyancy, businesses are looking
beyond their own borders to expand capacity and
enter growing markets, as exemplied by UK-based
engineering group IMI’s two acquisitions in February:
one o amily-owned Italian valve manuacturer
Remosa or US$131m and the other o Brazilian valve
maker Grupo InterAtiva or US$35m.
The scene shits on a regional basis as well. In
Europe, valuations are thought to be comparatively
attractive at the moment, which could pique buy-side
interest, although misaligned price expectations
could be a stumbling block on some transactions.
Nonetheless, in both North America and WesternEurope lower value-added metal bashing industrial
outts, acing sti competition rom emerging
markets, may nd 2012 a good time to sell.
Additionally, there are increasing numbers o
distressed and insolvency-related deals coming out o
Europe already this year, with Wirthwein’s acquisition
o ellow automotive parts supplier ttb and metal
processors L. Possehhl & Co’s takeover o manroland’s
press business serving as prime examples.
Positively, the palliative measures undertaken to
soothe volatility rom the sovereign debt crises
have provided a degree o stability. But austerity
measures have also triggered severe backlash
in some cases, making investors understandablycautious. Upcoming elections in major industrial
countries such as the US may cause investors
to retreat rom dealmaking through the autumn,
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
Top 10 Cross-border Industrials & Chemicals deals, Q2 2011 - Q1 2012
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
Global economic growth
Y e a r o n y e a r %
c h a n g e
INDUSTRIALS & CHEMICALS OVERVIEW
especially as recent French elections have been a
stark reminder that leadership changes can quickly
change a country’s business-riendly prole.
In Asia-Pacic there are rumblings o discontent
too: in the wake o the Fukushima nuclear disaster
and the ensuing rise in energy costs, Japanese
manuacturers in industrial electronics are seeing
margins squeezed at the same time that they ace
ever greater competition rom rising stars in South
Korea and Taiwan. They are also contending with
a strong yen, global economic volatility and subdued
external demand in key product and export markets.
Given these global economic pressures, the
most attractive assets will be high value-added,
niche industrial manuacturers that have the
latest technology and healthy margins. However,
competition to acquire such businesses will be steep,
with cross-border acquisitions more commonplace
than ever, and the outlook or private equity activity
back to strength. This will add re to the valuation
debate, elevating the challenge or acquirers and
their advisors as they seek opportunities or growth
amidst a still volatile global economic environment.
Heat Chart
Industrial
products
& services
Chemicals &
materials
Manuacturing Automotive Industrial
Electronics
Industrial
automation
Overall
Asia-Pacic 394 143 84 80 109 36 846
Western Europe 178 28 76 37 16 16 351
North America 56 44 26 31 14 6 177
Central & Eastern Europe 59 20 15 6 6 3 109
Latin America 19 10 13 6 3 4 55
Middle East & North Arica 11 2 7 1 2 23
Sub-Saharan Arica 2 2 1 1 1 7
Overall 719 249 222 162 150 66 1,568
Key
Hot
120
100
80
60
40
20
0
Cold
The Heat Chart is based on 'company or sale' stories tracked by mergermarket over 01/01/2012 to 27/04/2012.
Opportunities are tracked according to the dominant sector and geography o the target.
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GLOBAL M&A SERIES – CHEMICALS & MATERIALS
M&A SPOTLIGHT: CHEMICALS & MATERIALS
The global chemicals and materials sector was
hit hard by the drying up o the credit markets in
2009. M&A came to a virtual halt that year, with
volume alling 31% against 2008 and value alling
61% to reach its lowest point on record since
2005. The decline was even more pronounced
or private equity, with buyouts and exits both
dropping 48% in volume terms rom 2008 to 2009.
The chemicals and materials sector – which
covers an eclectic mix o subsectors including
petrochemical bases and derivatives,
agrochemicals, ne chemicals and ood additives –
is notoriously cyclical, so investors’ retreat rom the
industry in 2009, and the resulting decline in M&A,
come as little surprise.
But ortunately, neither does the slow and
steady recovery underway since then: in 2011
chemicals and materials M&A increased 16%
in volume and 56% in value rom 2010 to reach
409 deals worth a combined US$93.8bn globally.
Private equity buyouts totalled 55 worth roughly
US$6.7bn in 2011, up 34% in volume and 56%
in value rom the previous year.
N u m b e r o f d e a l s
Annual buyout and exit volumes
V a l u e o f d e a l s U S $ m N
u m b e r o f d e a l s
Chemicals and materials M&A trends
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GLOBAL M&A SERIES – CHEMICALS & MATERIALS
Top 10 Chemicals and materials, Q2 2011 - Q1 2012
M&A SPOTLIGHT: CHEMICALS & MATERIALS
Regional insights
From a regional perspective, more than one-third
o M&A targets came rom Western Europe (34%)
in 2011 and 2012, ollowed by the Asia-Pacic
region with 28% and North America with 22%.
Looking at the most active bidders, Western
European and North American acquirers both
accounted or 32% o announced deals, while
the Asia-Pacic region accounted or just under
one-quarter.
Top 5 target and bidder countries by chemicals and materials M&A volume, 2011 - 2012 YTD
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GLOBAL M&A SERIES – CHEMICALS & MATERIALS
M&A volume split by target dominant region M&A value split by target dominant region
M&A volume split by bidder dominant region M&A value split by bidder dominant region
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GLOBAL M&A SERIES – CHEMICALS & MATERIALS
What’s driving the recovery?
Strategic acquirers’ appetite or growth in
emerging markets has been a dening eature
o the chemicals and materials industry in recent
years, and is illustrated quite clearly by some
o 2011’s largest transactions: the US$6.4bn
acquisition o French chemical giant Rhodia SA by
Belgium-based Solvay SA aims to strengthen the
combined entity’s presence in emerging markets,
which account or 40% o its aggregate sales,
while the US$4.6bn acquisition o Solutia Inc by
US-based Eastman Chemical Company is part
o its strategy o expanding into the Asia-Pacic
region, where Eastman is orecasting a compound
annual growth rate o up to 10% or the next
several years.
Emerging market players have been active
acquirers in their own right. Cross-border M&A
increased by 9% in volume and 152% in value
rom 2010 to 2011, and Asia-Pacic investors
– particularly state-backed entities with an
insatiable appetite or raw materials, technology
and innovation – played an important role inboosting these gures. In one o 2011’s most
notable deals, China National Agrochemical
Corporation, a ull subsidiary o China National
Chemical Corporation (ChinaChem), acquired
a 60% stake in Israel-based Makhteshim Agan
Group (MAI), the branded o-patent agrochemical
producer, rom Koor Industries, the Israeli
investment group.
Three months ater the MAI-ChinaChem
announcement, MAI – still 40% owned by Koor
Industries – paid an undisclosed amount or the
non-mixture diuron herbicides business o E.
I. du Pont de Nemours and Company (DuPont),
highlighting the combined entity’s ambitious
expansion eorts and the increasing competition
rom emerging players.
Corporate disposals, private equity-backed businesses top targets
MAI’s acquisition o the DuPont herbicides
business also brings to light another important
element o the chemicals and materials
landscape, which is the importance o corporatedisposals. Corporate disposals generated roughly
hal o all M&A targets between 2005 and 2011,
coming mostly rom major players like US-based
Cross-border share o global chemicals and materials M&A
% o
f o v e r a l l C h e m i c a l s a n d m a t e r i a l s M & A
DuPont and The Dow Chemical Company or
Germany-based chemical giant BASF SE, and
in many cases going into the hands o oreign
strategic buyers.
Dow’s continuous deleveraging strategy serves
as a case in point. Shortly ater its acquisition
by Dow in 2008, Rohm and Haas sold Morton
International Incorporated, its consumer and
industrial de-icing salt subsidiary, to Germany-
based ertiliser company K+S Aktiengesellschat
or US$1.7bn in April o 2009, and its powder
coatings unit to Netherlands-based Akzo Nobel
NV or an undisclosed amount the ollowing
November. More recently, in 2011, Dow sold
its polypropylene business to Braskem SA, the
Brazilian petroleum chemicals producer, or
US$340m. In an even smaller transaction, Dow
AgroSciences sold its European dithane ungicide
business to India-based Indol Chemicals
Company or US$50m.
Private equity portolios are also providing a
good source o acquisition targets. Two o the
past year’s largest M&A deals involved private
equity-backed businesses, including German
specialty chemicals company Sued-Chemie AG,
a portolio company o US-based private equity
rm One Equity Partners in which Swiss specialty
chemicals company Clariant AG acquired a 96.2%stake valued at US$2.6bn. UK-based Permira and
Austria-based VCP Vienna also sold a 58% stake
in Hungary-based plastic raw materials company
BorsodChem Zrt to Wanhua Industrial Group, the
Chinese polyurethane company, in a US$1.7bn deal.
Another signal that buyout groups may nally let
go o their holdings is strong secondary buyout(SBO) activity, with SBO volume totalling 15 worth
US$4.5bn in 2011 and two SBOs eaturing among
the top ten largest chemical deals globally. These
include the sale o CVC Capital portolio company
Taminco NV, a Belgium-based producer and
marketer o alkylamines and alkylamine derivatives,
to Apollo Global Management in a US$1.4bn deal.
In another secondary buyout, the black carbon
business o Evonik Industries AG, a diversied
specialty chemicals company based in Germany and
also a portolio company o CVC Captial, was sold to
Triton Partners and Rhone Capital in a US$1.3bn deal
with each acquirer holding a 50% stake.
Deal size trends
While the multi-billion dollar deals naturally draw
the most media attention, the most substantial
amount o M&A activity can be ound in the lower
mid-market, dened here as US$15m to US$100m,
where deal volume in 2011 totalled 88, up rom 74
in 2010. And it is these deals that demonstrate
just how ragmented the market remains and
just how many opportunities exist or mid-market
acquirers, both strategic and nancial.
Even in the boom years, there has always been
a steady stream o smaller-scale M&A taking
M&A SPOTLIGHT: CHEMICALS & MATERIALS
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GLOBAL M&A SERIES – CHEMICALS & MATERIALS
place against the backdrop o mega-mergers and
these deals oten serve as a helpul guide or
where the market is headed. In 2007, or instance,
Rohm and Haas established a joint venture with
South Korea-based SKC Incorporated, valued atUS$183m, to manuacture and market advanced
optical and unctional lms used in the fat panel
display industry.
More recently, some o the larger chemicals
and materials deals have included lower-prole
players like One Equity Partners, a US-based
private equity group ocused on the mid-market
who sold portolio business Sued-Chemie in
a US$2.6bn deal. Even more recently in 2012
another mid-market specialist, Aurelius AG,
a German private equity rm targeting corporate
spin-os and medium-sized independent
companies, acquired a manuacturing site or
crop protection products and specialty industrial
chemicals rom chemicals giant Bayer Cropscience
AG or an undisclosed amount.
Outlook
Corporate disposals and private equity exits
should continue to drive chemicals and
materials M&A through 2012, particularly i
eurozone uncertainties are eased. The year so
ar has seen 100 chemicals and materials dealsworth US$16bn globally, with about 43% o
total deal volume coming rom the US$15m to
US$100m range.
Strategic interest in Sued-Chemie AG and other
private equity-backed companies in 2011 is a
welcome sign that the exit market is growing
more avourable, and private equity rms’
willingness to exit their holdings suggests thegap between buyer-seller expectations are nally
starting to narrow. In one o the most recent exits
o the year so ar, Danish venture capital group
Novo A/S acquired an approximate 26% stake
worth US$708m in Chr. Hansen A/S, the Danish
natural ood ingredient company, rom French
private equity house PAI Partners.
O course, there are other industry-specic
dynamics to consider going orward. While
agrochemicals M&A has been dominated largely
by opportunistic deals, the specialty chemicals
sector is likely to be driven by an appetite or
increasing market share.
“A decade ago, specialty chemicals presented
the ‘promised land’ o higher margins and
less capital investment, and many companies
rushed to signicantly increase their specialties
investments. The result is no surprise: specialties
are now seeing pressure on margins as the
competition to increase market share has become
more intense,” says Carolyn Buller, Partner
and Global Head o Squire Sanders’ Chemicals
Industry Practice.
This ocus on increasing market share is at least
partly refected in some o the year’s larger deals
– or instance, DuPont’s purchase o Danisco,
Ashland’s purchase o ISP and Solvay’s purchase
o Rhodia – and going orward could translate into
smaller scale acquisitions o specialty chemical
companies and product lines.
Other segments such as petrochemicals will be
sensitive to energy sector developments. High
and volatile commodity prices will likely detract rom
the overall appeal o petrochemicals companies,
with Dow’s sale o its polypropylene unit to
Brazil-based Braskem being a case in point, while
the development o unconventional sources like
shale gas will contribute to the appeal o North
American targets.
In this respect, the shale phenomenon has been
a game changer, says Buller: “Up until recently,
the center o the global chemical industry seemed
destined to be moving to the Middle East and
away rom Europe and the US, driven by the
abundance o relatively inexpensive oil eedstock
in the Arab World. This idea has now been
turned on its head, as the shale gas phenomenon
has created an abundance o ethylene and itsderivatives, and set the stage or an abundance
o inexpensive raw materials in the US.”
This is likely to translate directly into M&A
opportunities or the remainder o 2012 and
beyond, particularly as commodity price swings
o the past ew years and political upheaval in oil
rich nations have made energy independence a
top priority. As Buller notes, “Two years ago no
one would have predicted new reneries being
built or old reneries reopened in the US. In 2012,
it’s become a common story.”
Chemicals and materials deal size split by year
N u m b e r o f d e a l s
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GLOBAL M&A SERIES – Q&A
Q&ACIPRIANO BEREDO, GLOBAL INDUSTRY GROUP LEADER,INDUSTRIAL PRODUCTS, SQUIRE SANDERS
Cipriano Beredo regularly advises public and
private companies on international mergers
and acquisitions. He has particular experience
advising industrial companies in complex
multijurisdictional acquisition and divestiture
transactions. He has completed transactions in
more than 30 countries and routinely manages
teams o proessionals across the globe.
MM: How has global economic volatility aected
diversied industrial companies’ M&A strategies?
CB: Diversied industrial companies have responded
to global economic volatility by pursuing M&A
strategies to broaden their geographic coverage andreduce their reliance on any one particular market.
As industrial companies search or growth
opportunities around the world, we are seeing
renewed interest in the United States, which was the
most active market or deal making in the rst hal
o 2012. There has been slow and sustained growth
in the US, and while that’s not incredibly exciting, it’s
still attractive when you consider it in light o what
we’re seeing in other developed markets.
The Asia-Pacic region remains a ocus or
industrial companies as well. China remains
critically important and, although there is some
concern about its ability to maintain current
growth rates, the expansion there still outpaces
anything we’re seeing in the US or Europe. You
also have China and India “outbound” investment,
which is increasingly becoming a driver o M&A
activity in this sector. Many established Chinese
and Indian industrial companies are looking to
increase their product oerings, improve their
technology and expand their global ootprint, not
only with acquisitions in the Americas, but also
in Europe, Australia and elsewhere in Asia. Andthe Asia-Pacic story is by no means limited to
China and India. Japan, Korea and Australia, and
Singapore, which provides a gateway to other rapidly
growing economies in the region, are also important
markets or investment by industrial companies.
Finally, diversied industrial companies are
not going to abandon Europe, although, when
evaluating their investments and operations in that
region, they may ocus their M&A strategies on
countries that are considered to be comparatively
saer markets in which to expand or invest, such
as Germany and the UK. European deals generally
might take longer, require more diligence and
involve more negotiation o contingencies than they
have in the past, but they are still getting done.
We’re also seeing strong activity in countries like
Russia and Poland. Most people are amiliar with
the growth Russia has experienced, but Poland still
tends to be under the radar. It’s been one o the most
resilient EU economies throughout the crisis with
an economy that has grown by more than 15 percent
in the past three years. So even within Europe,
there are markets that are attracting M&A activity
in this sector.
MM: Which types o deals have diversied
industrial companies been most eager to pursue?
CB: While there have been a handul o very
signicant mega-deals in this sector so ar in
2012 - Eaton Corporation’s recently announced
US$11.9bn merger with Cooper Industries being
the largest and most prominent example - smaller
deals continued to make up the majority o
diversied industrial transactions.
Companies in this sector are ocused on pursuing
deals that drive growth and allow or expansion
into new and emerging markets. Technological
advancement is also a key deal driver, particularly
with respect to smaller bolt-on acquisitions. The
need to continue reducing manuacturing costs
and concentrate headcount in low-cost countriesare also important deal considerations; however
that desire is oten balanced against the need to
be close to end markets and customers’ production
acilities and considerations o transportation costs
and delivery times.
MM: Which segments o the diversied industrial
sector (e.g. manuacturing, automotive) are
experiencing the most change?
CB: Well, change has been the norm across
all industrial segments or a while, but to do a
deeper dive into one particular area, I would say
the automotive segment has experienced some
o the most signicant changes. Here you have
global businesses that have elt the impact o both
the positives and the negatives o the economy
during the past ew years. We all witnessed
a very precipitous decline in the automotive
segment ater the ‘great recession’ ollowed by
numerous bankruptcy lings, which peaked a ew
years ago. Since then what has emerged is an
automotive industry that has undergone a great
deal o restructuring and is poised or both M&A
growth (particularly cross-border) and urther
market consolidation over the next ew years,
particularly given anticipated expansion in the
light vehicle markets and in Chinese and Indian
businesses expanding their reach into the US
and Europe. While M&A activity in this segment
will still be contingent on the resolution o many
macro-economic actors, some recently announced
transactions, like Visteon’s sale o its lighting
business to an Indian buyer, Varroc, may signal the
beginning o increased automotive deal activity.
MM: Cross-border deals are coming to represent
a larger share o total M&A deal volume in the
industrials sector globally. What do you see as
the driving orces behind cross-border M&A at
the moment?
CB: There are several important actors at work
here. First, we see many diversied industrialcompanies in mature markets like the US and
Europe that may have already maximized the
opportunities in their existing markets, so they
Companies in this sector are ocused on pursuing deals thatdrive growth and allow or expansion into new and emergingmarkets. Technological advancement is also a key deal driver,particularly with respect to smaller bolt-on acquisitions.
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GLOBAL M&A SERIES – Q&A
need to seek growth rom M&A activity outside
o their traditional strongholds. Second, many
diversied industrial companies are large and
this tends to drive cross-border activity because
their acquisitions need to be bigger in order to
“move the needle” and have an impact on their
nancial results. The larger targets they seek are
oten multinational corporations themselves doing
business in multiple jurisdictions. Finally, there
are an increasing number o large, well-unded
companies rom China, India and other emerging
markets that are stepping up their cross-border
M&A activity. And as there are more successulexamples in the diversied industrials sector o
“outbound” investments by Chinese and Indian
buyers, and as management teams and employees
at target companies become more accustomed to
being directed by management operating out o
Shanghai or Delhi, these deals will only become
more prevalent.
MM: Widespread nancial reorms, including
higher capital adequacy requirements or US and
European banks, have put pressure on lending
activity and restricted access to M&A nancing.
To what extent have nancial reorms aected
nancing availability in the industrials sector?
CB: To make a broad generalization, corporate
prots or diversied industrial companies have
been relatively solid recently, meaning that some
companies in this segment have cash on their
balance sheets to pursue certain transactions with
little or no borrowing. So in a sense you could say
that M&A activities or these companies have
not been so heavily aected by nancial reorms.
That said, a lot o the companies we’re talking
about here are both sellers and acquirers – they
make acquisitions, but they also sell non-corebusinesses. So when you’re looking at the pool
o potential buyers or an asset – private equity
buyers, or anyone else who might participate in
your auction process – and thinking about how
robust a sale process you can run and the multiples
you might get in a sale, the availability o nancing
or potential acquirers becomes a big issue.
And the truth is that it’s really too soon to gauge
the ull impact o nancial reorms on global M&A
activity. A lot o the reorms in Europe are still in
the process o coming online, and those reorms
will inevitably result in an increase in the cost o
borrowing. Further deterioration o the banking
sector in the hardest-hit eurozone countries could
result in even more regulatory activity. Certainmarginal loans aren’t going to be made, you’re
going to be adding some time to the borrowing
process, and as a result adding time to the overall
acquisition process.
So when it comes to the availability o unds
or M&A, all companies need to anticipate that
nancial reorms will limit the global pool o
potential lenders and thereore the availability o
unds. Even the hypothetical industrial company,
whose prots and cash on hand may be sucient
generally to und its M&A program, must pay
attention to these developments. Because there
will be instances where it may want to pursue a
transormative acquisition that’s large enough to
require borrowing, and the availability o nancing
will suddenly be a matter o critical importance.
MM: How closely are acquirers monitoring
developments in the eurozone? How will Europe’s
limited growth prospects over the next ew years
aect diversied industrial companies outside o
the region?
CB: Acquirers are monitoring the eurozone very
closely and keeping an eye on how things are
taking shape, and it’s impacting their decision
making. But companies in the industrial sector
will continue to actively pursue M&A because
in mature industries, M&A is a signicant and
necessary driver o growth. These industrial
companies likely have operations throughout
the eurozone, and they understand the growth
prospects or Europe will be fat or even negative
in the short term and that there will likely be a
period o economic and political turmoil. But I
don’t see them engaging in a re sale – they’re
not going to divest or walk away rom Europe or
sell their businesses or assets in the region at a
deep discount.
So what are their options? They could scale back
their projections or growth. But that course is
not terribly attractive, particularly or industrialcompanies under pressure to deploy assets. So an
alternative is to aggressively pursue M&A in higher
growth regions in part to help balance out the
eurozone risk. This strategy may uel M&A activity
in North America, Asia, and those regions within
Europe that are considered saer, and more generally
in emerging markets, because companies will have
to continue to pursue those markets to use their
capital and nd growth during the next ew years.
European deals generally might take longer, requiremore diligence and involve more negotiation
o contingencies than they might have in thepast, but they are still getting done.
...all companies need to anticipate that nancial reormswill limit the global pool o potential lenders and thereorethe availability o unds. Even the hypothetical industrial
company, whose prots and cash on hand may besucient generally to und its M&A program, must pay
attention to these developments.
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GLOBAL M&A SERIES – INDUSTRIALS & CHEMICALS
Squire Sanders is one o the world’s leading
commercial legal practices, with over 1,300
lawyers in 37 oces located in 18 countries.
We have more than 350 transactional lawyers
globally, who provide expert multijurisdictional
and local M&A legal advisory services. Our
lawyers work through more than 20 specialized
industry groups rom energy and natural
resources to lie sciences, healthcare, chemicals
and communications.
Our transactional lawyers are resident in our
oces around the world, providing on-the ground
resources or all o our clients across the Americas,
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structures, environmental concerns, tax matters and
more, we are able to assemble optimal and ully
integrated teams dedicated to attaining your goals.
In brie, we help our clients to completesuccessul M&A transactions.
William Downs
Partner
Practice Group Leader,
Corporate and Corporate Finance
+44 20 7655 1743
www.squiresanders.com
Cipriano Beredo
Partner, Cleveland
+1 216 479 8280
Carolyn Buller
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For more inormation please contact:
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