Mega deals involving US-based companies in the global chemicals industry helped raise merger and acquisition (M&A) deal value to $16 billion in the third quarter of 2011, according to Chemical Compounds, a quarterly analysis of M&A activity in the global chemicals industry by consultancy PricewaterhouseCoopers (PwC).
There were four mega deals, or deals worth $1 billion or more, that contributed a combined total value of $11.7 billion, an increase of almost 12% when compared with $10.5 billion in the second quarter of 2011.
Overall, chemicals mega deal value made up 73% of third quarter deal value, according to the study.
For announced deals worth $50 million or more, there were 22 transactions totaling $16 billion in the third quarter of 2011 compared to 31 deals and $14.8 billion in the prior quarter.
Due to higher deal values from mega deals in the third quarter, average deal value jumped more than 50% to $725.6 million, up from $476.4 million in the second quarter.
When excluding the one $40 billion blockbuster chemical transaction in the third quarter of 2010, deal value for transactions over $50 million increased 60% in the third quarter of 2011 compared to last year.
Deal volume was flat at 22 transactions in the third quarter of 2011 compared to 24 deals in the same period last year.
"Results from the third quarter clearly demonstrate the continued recovery in the global chemicals deal market," said Tracey Stover, global chemicals leader for PwC.
"Companies are looking to M&A to supplement organic growth and to expand into new markets. Global chemical companies are realizing the benefits of recent cost-cutting and streamlining initiatives, which has freed up cash and resources to fund larger and more ambitious deals. While financial uncertainty remains a concern for global markets, we expect an ongoing and steady rebound for chemical M&A."
Strategic investors dominated deal activity in the third quarter of 2011, contributing all four mega deals, while financial deals accounted for only 1.2% of deal activity, the lowest proportion since PwC began tracking activity by investor group in 2006.
"While the shift toward corporate acquirers may be due to their ample cash stockpiles, we suspect that the currently high M&A valuations could lead private equity investors to seek to divest chemical holdings to strategic investors," said Stover.
In contrast to the second quarter of 2011 where there were no medium-sized deals (deals valued at more than $500 million but less than $1 billion), there were two mid-sized deals, totaling almost $2 billion in the third quarter of 2011.
However, smaller deals valued at least $50 million but less than $500 million, dropped nearly 43% from $4.2 billion in second quarter of 2011 to $2.4 billion in the third quarter.
Targets in North America drove deal volume, accounting for 27% of deals valued at $50 million or more in the third quarter of 2011, largely driven by activity in the US.
"For acquirers, both deal volume and value were led by North American-based companies, likely due to the relative size of these companies and a more consolidated chemical market," said Anthony J. Scamuffa, US chemical leader for PwC.
Deals involving South American targets rose nearly 4% from the second quarter to account for 18 percent of all transactions in the third quarter, with an uptick in Brazilian deal activity.
There were four deals worth $50 million involving Brazilian targets and two deals with Brazilian acquirers.
The Asia and Oceania region contributed 23% of deal volume, the same percentage as the UK and Eurozone region. While a considerable portion of activity in Asia involved domestic deals, particularly in China, Chinese deal activity fell to 49 deals, a 55% decrease in volume when compared to the second quarter.
"Most of China's deal activity in the third quarter of 2011 was driven by domestic transactions as companies continued to consolidate to achieve scale within their market," said Stover. "China will continue to drive deal activity in the Asia and Oceania region, but at a slower pace as companies look to acquire targets that are strategic to their growth strategy."
For more details on the chemicals study, visit the PwC site. To learn about PwCs third-quarter analysis of oil and gas M&A activity, you can read our story from Wednesday by clicking here.