REFILE-DEALTALK-At record levels, chemicals M&A fever to spread

Mon May 2, 2011 1:25pm GMT

AMSTERDAM, May 2 (Reuters) - Hunger for deals after the credit crisis has lead to a record start to chemicals sector acquisitions this year and bankers say the consolidation will continue as firms seek higher margins and diversified markets.

The value of chemical sector M&A pushed above $30 billion with Solvay's (SOLB.BR: Quote) agreed buy-out of French group Rhodia RHA.PA in April, a record start to any year, before DuPont (DD.N: Quote) raised its bid for Denmark's Danisco DCO.CO on Friday.

The two deals are part of a trend of chemicals firms moving away from commoditised base chemicals and into higher margin and higher growth areas such as nutrition or high-end plastics, looking for economies of scale and diversification in markets.

Cost savings and caution towards M&A in the past couple of years also mean companies have amassed cash and are now emerging from the global recession keen to go on the offensive.

"Corporates are sitting on a lot of cash, credit markets are open and there is up pent-up demand for M&A activity," one U.S.-based sector banker said.

A European banker added that Germany's BASF (BASFn.DE: Quote), in particular, plus also AkzoNobel (AKZO.AS: Quote) and Solvay have emerged from a fragmented European chemicals market as either the big or "chunky size" players large enough to buy-out rivals.

"Size is important because of what it enables you to do, in terms of organic growth and acquisitions," the European banker said. "The question is what happens to these smaller companies and I would expect consolidation to continue."

Deals are especially expected in the specialty chemicals and performance materials field and possible targets could be Britian's Croda (CRDA.L: Quote), French group Arkema (AKE.PA: Quote), Germany's Lanxess (LXSG.DE: Quote) or even Altana AANAF.PK.

U.S.-based groups Chemtura CHMT.N and FMC Corp (FMC.N: Quote) are also said to be potential targets, while a host of small to mid-cap companies could look to merge operations, bankers said.   Continued...

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