Partner Kirk Mcintosh in the Wall Street Journal

November 13, 2012 | Prudence Ho

Chemical Sector Begins to Simmer

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After a lackluster few quarters, as economic uncertainty globally put a damper on acquisitions, deal activity in the chemical sector is heating up, thanks to a sudden spate of acquisitions by Indian firms.
“You can’t afford not to show overseas assets to potential Asian buyers today as they are eager to grow and ready for deal action,” said Sen Lin, a senior banker focusing on the chemical sector at J.P. Morgan Chase & Co. “At the same time, a lot of companies in [the] U.S. and Europe are looking for opportunities in Asia.”

Mr. Lin said he expected merger transactions worth a “few hundred million dollars” to be signed in
coming months. Chemical companies grabbed the international spotlight in the merger-and-acquisition world in 2010, when the Canadian government blocked a deal by BHP Billiton to buy Potash Corp. of Saskatchewan. Since then, big chemical transactions have been few. In the first three quarters of the year, global M&A in chemicals was down 58.5% from a year earlier, while acquisitions outside the region by Asian companies fell 74%.

But last month, Asians returned to buying mode. Indian companies spent at least $2 billion in acquisitions of chemical firms globally.

Rain Commodities Ltd., an Indian industrial group, said it was buying Ruetgers NV, a European maker of specialty chemicals for €702 million ($892 million). Another Indian company Jindal Poly Films Ltd. announced it was acquiring ExxonMobil Chemical Co.’s oriented-polypropylene-film operations. Jindal didn’t disclose how much it was paying.

Last week, an Indian company moved toward the country’s biggest overseas acquisition this year—in the chemical sector. India’s Gulf Oil Corp., the lubricants division of the Hinduja Group, said it was seeking to buy U.S. chemical maker Houghton International Inc. for $1.05 billion from AEA Investors LP.

“These three Indian deals [are part of] what we believe are key themes in outbound Asia M&A: accessing technology and customers,” said Kirk Mclntosh, a partner in the Valence Group, a London firm that advises companies on acquisitions in the chemicals sector. Valence advised AEA on selling Houghton.
Mr. McIntosh said Jindal appears to have bought the ExxonMobil business to gain access to the
technology to produce packaging and labels for products such as beverages, confectionary and dry
food. Buying Houghton gives Gulf Oil a wider geographical reach, as well as the size that will give it “big savings in buying raw materials such as base oils,” he said. Asia’s chemical companies range from state-owned players like China’s Sinochem Group to familyrun companies such as India’s Gulf Oil. China’s chemical companies—dominated by Sinochem and two other state-owned firms, China National Chemical Corp., and Sinopec Group’s chemical
subsidiaries—have been quiet on the acquisitions front this year.