Q4 2009 Quarterly Newsletter

2009 chemical industry M&A trends in review.

Q4 2009 Quarterly Newsletter

Q3 2009 Quarterly Newsletter

Below is a link to the latest newsletter from McGladrey's Chemicals Group. This quarter I had the pleasure of interviewing Dino Rossi, CEO of Balchem. Balchem is a premier chemical manufacturing company offering human and animal nutrition products, as well as a provider of state-of-the-art encapsulation technologies. The company is publicly traded on the NASDAQ under ticker BCPC with market cap of over $500 million.

Q3 2009 Quarterly Newsletter

Q2 2009 Quarterly Newsletter

Current trends in the chemical industry.

Q2 2009 Quarterly Newsletter

Article on Capital Market Fees replacing M&A

Below is an article on capital markets fees replacing M&A as transaction volume declines. With the turmoils in the M&A advisory business, we will be seeing a lot more boutique firms popping up all over the place; in fact, we have been already ever since the fall of Lehman. Any managing director with half an entrepreneurial spirit, some seed capital and a decent client list can start his or her own boutique shop, and a few of those will be butting heads right up against what's left of the bulge bracket banks. But for the most part they will be living off the lower to middle market, focused on M&A, general advisory and private placements. Just like all other sectors, we'll likely see another wave of consolidation of middle market firms and boutiques as deal volume comes back and the larger banks salivate after these high margin and often high profile fees.

From Thomson Reuters...

Capital markets save dealmakers' fees as M&A wilts

Fri Jun 26, 2009 4:23am EDT

By Douwe Miedema and Jessica Hall

LONDON/NEW YORK (Reuters) - Dealmakers saw business pick up again in the second quarter as they helped companies raise cash in capital markets, but lucrative mergers and acquisitions (M&A) languished.

Worldwide combined capital markets and M&A fees rose for the first time in a year, Thomson Reuters data showed on Friday, up 29 percent from the first quarter, with share sales -- such as rights offerings -- the most buoyant.

"There's a shift away from banks being the sole capital source for growth. There are fewer banks in the world and they have less money," David Fass, head of global banking at Deutsche Bank, told Reuters.

Banks are hesitant to lend after the credit crunch depleted their treasure chests, and cash-hungry companies are instead selling bonds and shares to rebuild their balance sheets, refinance maturing debt, or expand.

The year has seen mammoth bond sales to fund mergers, with Pfizer Inc raising more than $23 billion for its purchase of Wyeth, after Roche sold $30 billion in bonds to help buy Genentech.

Banks have embarked on massive rights issues to refill their coffers, with HSBC's $19 billion share sale in April topping the table of large deals, the second-largest rights issue of all time, according to the data.

"Markets for capital raising have been extremely active, you have seen equity balance sheet repair for the financial sector and increasingly the corporate sector," Enrico Bombieri, head of European investment banking at JP Morgan Chase & Co, said at a media briefing this month.

JP Morgan benefited most from the surge in capital market transactions, topping first-half global league tables in equity capital markets, bonds and syndicated loans.

From underwriting 166 equity issues, the bank earned an estimated $1 billion in fees.

NO MORE LOANS

Global mergers and acquisitions saw the steepest decline since 2001, the data showed, dropping 44.5 percent in the first half of the year from the year-ago period, with companies wary to take on more risk and funding scarce.

Morgan Stanley took the lead in both global and U.S. M&A advisory work, edging aside Goldman Sachs Group Inc in the first half of the year.

Part of the weak deal flow is that banks can no longer support these deals with loans, scared that the recession will cause more bad loans and further toxic assets may come to light, prompting them to reduce their debt levels.

Significantly, syndicated loans -- traditionally the first point of call for acquisition funding in Europe -- all but dried up, hitting their lowest volume in 13 years and dropping 58 percent from the year-ago period.

"Europe has traditionally been a bank-financed market ... fundamentally we're seeing a shift away from the loan market to the capital markets," Viswas Raghavan, JP Morgan head of international capital markets, said at the briefing.

Bond volume issued so far this year at $589 billion already exceeds any previous full-year volume, the data showed. It was the busiest start of the year ever, with a slower second quarter after a record first three months.

"It's very likely we'll see debt capital markets play an increasingly active role in corporate financing, but what could reverse this trend is conditions in the loan market," said Mark Lewellen at Barclays Capital.

Equity issuance excluding IPO's and convertibles roughly tripled to $259 billion in the second quarter, up from $88

billion in the first quarter. Still, it was 7 percent below the year-ago level. The business generated almost half of investment banking fees in the second quarter.

"Interest rates remain low, there's pent-up demand for capital raising and companies crave extra liquidity in times of crisis," said one head of mergers in the Americas at a U.S. investment bank, asking not to be named.

The pipeline for upcoming equity sales remains full, with a total of 977 announced deals yet to come to market.

Fees for completed M&A plummeted by 66 percent in the second quarter from a year ago. They were just 19 percent of overall fees, the lowest ratio in 3 years, and down from levels hovering around 40 percent since the start of 2006.

"It's a healthy financing environment, but still a weak M&A market. People don't have the courage or the conviction to do dramatic deals at the moment," one global head of M&A at a U.S. investment bank said, also declining to be named.

Financials were the most active M&A sector, including large government bail-outs such as that of Lloyds and Royal Bank of Scotland in the UK -- yet another sign how much banking woes have taken center stage.

New Leadership at RSM McGladrey

C.E. Andrews joins us as President of RSM McGladrey. You can find the press release here.

McGladrey Fiscal Year-End Event

We held our fiscal year-end company event this month. Just a little memorabilia of our winning Top Chef Competition team.

Global Chemical M&A Volume Update

The latest estimate of the global chemical industry M&A transaction volume is above. 2009 was a difficult year but volumes were boosted by Dow / Rohm & Haas deal closing. Further divestitures from Dow should pad volumes for the rest of the year (i.e. Morton / K+S). Also expecting other consolidation activity to generate volume. Commodity chemical producers are moving to consolidate or shut down after significant pressure from shrinking global economy.

Keep in mind that volumes will continue to be limited by the major financing trends. I recently chatted with some middle mkt lenders; Senior leverage is pretty much capped at 2.5x with covenants at 3.5x total leverage. S&P's LCD shows about the same in their latest data. Equity contributions on LBOs are also way up - ~43% in H2 2008 based on S&P's LCD. Cash-rich strategics will continue winning deals for at least next 12 months. Deals without solid strategic buyers will be limited to the 5 to 6x valuation range.

Chemical Industry: Strategic vs Financial Buyer Multiples

I recently updated my chemical industry deals database. This data is a constant work in progress, will be further refined, updated and made available in our future newsletters. Key highlights - notice how the financial buyers ended up outbidding strategics in 2007, and notice how quickly their valuations drop with tight financing. Then notice how valuations from both types of buyers fall off as the economy comes to a screeching halt.

If you are with the press and want to use this data please call me to discuss.

(Data prior to 2000 from 3rd party sources)

Starting new blog...

Started this blog to keep track of any press that is related to my work. I'll also be using this from time to time to share some thoughts on the chemical industry and other sectors. I can't seem to just post links (or at least haven't figured it out yet) so I'm just copy/pasting entire articles... hopefully no harm no foul.

Thanks and enjoy.

-Jay

P.S. Never blogged in my life... excuse the mess.

Q1 2009 Quarterly Newsletter

McGladrey Capital Markets publishes a quarterly newsletter for each industry team; below is a link to the latest newsletter from my group (Chemicals). Hope you find it useful.

Q1 2009 Chemical Industry Newsletter