The Truth Behind Solvay-Fueled Chemical Mergers & Acquisitions Predictions
The pending acquisition of France's Rhodia by cash-rich Belgian chemical group Solvay has chemicals blogs, news outlets, and experts all considering what the deal means for chemical mergers and acquisitions (M&A) action this year. Many voices suggest it is a sign of increased confidence and a higher volume of deals to come. As more than one chemicals M&A advisory firm attempts to predict with more detail what the rest of 2011 and early 2012 will look like in terms of the health of the chemicals sector and the global economy and what this will mean for M&A activity, this dramatic response may be muddying already unpredictable waters.
In early April, analysts responded to announcements of the pending deal, suggesting that high cash balances and cleaner balance sheets at chemical companies and the number of medium to large sized deals announced in March all indicate that the sector is primed for more deals of this nature to go off in the coming months. With two or three other chemicals giants filling a similar profile to the diverse Rhodia, the belief is that similar takeovers have become more likely with the approval of the deal by Solvay and Rhodia boards. More than one analyst has also chimed in that this type of deal signals a move away from the typical "bolt-on" mentality of acquisitions, as Rhodia's portfolio holds few synergies with Solvay's activities.
Various news media sources report that the resultant European chemical giant will have annual sales of 12 billion Euros, with more than 90% of these combined sales coming from businesses where they are among the global top three suppliers. In other words, the merger is creating a new European giant. Yet this information represents the sum total of supporting arguments most experts quoted in news sources offer as to why this deal sets the stage for more chemical mergers and acquisitions. Yet the previous two facts, that this deal flies in the face of the bolt-on rule and that both Solvay and Rhodia have held somewhat distinct positions in their respective sub-markets, may in fact suggest just the opposite, that this deal and two other recent non-bolt-on deals are closer to a statistical anomaly than they are to an industry-defining mentality shift.
Understanding how this deal may portend other similar transactions is more complicated than analysts would argue; as two defining characteristics of this chemicals M&A deal separate it from the majority of activity and firms in the sector, it may be wisest to simply view this as an example of confident deal-making, not a harbinger of more increased activity to come.
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Some experts see the solvay-rhodia deal as a sign of more chemical mergers & acquisitions deals to come this year. Does it really signify that much? Get more info at http://www.valencegroup.com
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