Mergers & Acquisitions in Chemicals and Materials - Light at the End of Tunnel is NOT that of the Approaching Train

Mergers & Acquisitions in Chemicals and Materials –Light at the End of Tunnel is NOT that of the Approaching Train

Shrikanth S.

Senior Research Analyst

Business & Financial Services

October 27, 2009

N68F-F1 2

Focus Points

Introduction to Mergers & Acquisitions

Economic Indicators

Industrial Production

Federal Fund Rate

Crude Oil

Chemicals Index

Analysis of Trends

Analysis by Time

Trend by Integration

Analysis by Deal Volume & Average Deal Size

Analysis by Acquirer Profile

Analysis by Geography

Analysis by Segments

End Market Demand

Conclusions

N68F-F1 3

Focus Points


Economic Indicators


Federal Fund Rate

Crude Oil

Chemicals Index

Analysis of Trends

Analysis by Time






End Market Demand

Conclusions

N68F-F1 4

Economic Indicators

60

70

80

90

100

110

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09Months

Ind

exed

to

Jan

2008

Chemical Products Chemical Materials Basic Chemicals Organic ChemicalsInorganic Chemicals Industrial Gases Synthetic Dyes & Pigments Paints Coatings & Adhesives

0

2,000

4,000

6,000

8,000

10,000

12,000

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

Months

Balt

ic D

ry In

dex (

un

its)

Baltic Dry Index

Industrial Production & Baltic Dry Index Fed Fund Rate & LIBOR-OIS Spread Crude Oil Price & Stock Index

N68F-F1 5

Economic Indicators

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Oct-09

MonthsP

erc

en

tag

e (

%)

LIBOR-OIS spread (%)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-0

0

Ma

y-00

Sep-0

0

Jan-0

1

Ma

y-01

Sep-0

1

Jan-0

2

Ma

y-02

Sep-0

2

Jan-0

3

Ma

y-03

Sep-0

3

Jan-0

4

Ma

y-04

Sep-0

4

Jan-0

5

Ma

y-05

Sep-0

5

Jan-0

6

Ma

y-06

Sep-0

6

Jan-0

7

Ma

y-07

Sep-0

7

Jan-0

8

Ma

y-08

Sep-0

8

Jan-0

9

Ma

y-09

Sep-0

9

Months

Fu

nd

Rate

(%

)

Federal Funds Rate (%)

Senior Bank Loan Survey


N68F-F1 6

End Market Demand

0

10

20

30

40

50

60

70

80

90

100

110

120

130

Jan-0

0

Jul-00

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Months

$/b

arr

el

Crude oil price (Refiners acquisition cost - composite)


0

50

100

150

200

250

300

Jan 0

5

Mar

05

Ma

y 05

Jul 0

5

Sep 0

5

Nov

05

Jan 0

6

Mar

06

Ma

y 06

Jul 0

6

Sep 0

6

Nov

06

Jan 0

7

Mar

07

Ma

y 07

Jul 0

7

Sep 0

7

Nov

07

Jan 0

8

Mar

08

Ma

y 08

Jul 0

8

Sep 0

8

Nov

08

Jan 0

9

Mar

09

Ma

y 09

Jul 0

9

Sep 0

9

Days

Ind

exed

to

Jan

2005

S&P ASX 200 Materials Basic Materials S&P ChemicalsDow Jones US Chemicals Index FTSE 350 S&P 500

N68F-F1 7

Focus Points


Economic Indicators


Federal Fund Rate

Crude Oil

Chemicals Index

Analysis of Trends

Analysis by Time






End Market Demand

Conclusions

N68F-F1 8

Analysis of Trends

Source: Frost & Sullivan

0

20

40

60

80

100

120

140

160

180

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

Quarter

Deals

(x)

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

Avera

ge D

eal

Siz

e (

$ m

illi

on

)

Deals by Quarter Year over Year by Quarters

Maximum number of deals in

recessionary period, though

of small average deal size.

Time Integration Deal Volume & Size Acquirer Profile Geography Segment

N68F-F1 9

Analysis of Trends


321

259

189 182228 220 216

242

135178

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009Year

Dea

ls

Company Company Buyback Distribution

Forward Integration Backward Integration Research & Development

Acquisitions among companies to

companies and distribution to

distribution has a 63.4% correlation


N68F-F1 10

Analysis of Trends


0.05.0

10.0

15.020.025.030.035.040.045.050.0

2000Q1

2000Q4

2001Q3

2002Q2

2003Q1

2003Q4

2004Q3

2005Q2

2006Q1

2006Q4

2007Q3

2008Q2

2009Q1

Quarter

Av

era

ge D

eal S

ize (

$ m

illio

n)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

Av

era

ge D

eal S

ize (

$ m

illio

n)

<100 million 101-500 million

0.0

500.0

1000.0

1500.0

2000.0

2500.0

2000Q1

2000Q4

2001Q3

2002Q2

2003Q1

2003Q4

2004Q3

2005Q2

2006Q1

2006Q4

2007Q3

2008Q2

2009Q1

Quarter

Av

era

ge D

eal S

ize (

$ m

illio

n)

0.0

4000.0

8000.0

12000.0

16000.0

20000.0

Av

era

ge D

eal S

ize (

$ m

illio

n)

501-2000 million >2000 million


N68F-F1 11

Analysis of Trends - Analysis by Time


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009

Year

Ac

qu

ire

r P

rofi

le

Alternative Financial Investments Asset Management BanksBrokerage Insurance Other FinancialsChemicals Construction Materials Containers & PackagingMetals & Mining Other Materials Paper & Forest ProductsOthers

Increase in strategic

M&A


N68F-F1 12

Acquiring Regions Acquisitions in Percent (%)

9.29.515.414.710.810.820.514.216.618.4Southern Europe

1.03.85.09.68.36.88.07.19.714.2Eastern Europe

Target Regions Acquisitions in Percent (%)

9.24.41.11.64.12.42.52.82.11.7Rest-of-World

20.57.55.87.37.42.04.54.84.83.9BRICS

30.329.611.514.116.413.817.116.710.014.7North America

8.714.521.222.224.626.021.121.925.621.4Northern Europe

8.78.81.42.82.52.03.51.91.01.7Asia Pacific

1.51.95.44.02.92.44.04.34.87.2Eastern Europe

10.828.939.236.736.939.833.236.739.436.4Western Europe

11.319.626.922.726.626.024.023.623.222.3Northern Europe

9.23.80.40.40.40.00.00.00.30.3Asia Pacific

8.23.83.23.20.83.31.52.42.41.4Rest-of-World

11.35.012.29.78.610.615.111.411.813.3Southern Europe

13.325.943.742.241.148.841.046.243.638.4Western Europe

20.512.75.75.23.32.83.04.73.54.2BRICS

26.220.31.83.65.42.41.01.41.00.6North America

May 2009200820072006200520042003200220012000Regions

Analysis of Trends


N68F-F1 13


Analysis of Trends


8

2734

5160 61 64 65 67 71 71

77 79 84

109 114126

142151

156

172 173179

192 197

211218

240

253

283288

0

50

100

150

200

250

300

PF

E

PE

FA

HP

P

CC

EC

Bio

Cat

RC

E&

E

L&

G

Gas

Ela

s

O&

MC

TA

CP

C

WT

C

P&

P

PA

Pack

I&C

CM

F&

B

P&

CA

EP

PC

C&

HC

A&

S

AC

&F

AP

I

P&

C

CP

Segments

Deals

(x)

Commodity polymers, paints and coatings,

and pharmaceutical fine chemicals saw the

maximum acquisitions in the period 2000-

May 2009. However, during Jan-May 2009,

packaging and construction materials

accounted for majority of the M&As.

N68F-F1 14

Focus Points


Economic Indicators


Federal Fund Rate

Crude Oil

Chemicals Index

Analysis of Trends

Analysis by Time






End Market Demand

Conclusions

N68F-F1 15

End Market Demand

0

250

500

750

1000

1250

1500

1750

2000

2250

Jan00

Jun00

Nov00

Apr01

Sep01

Feb02

Jul02

Dec02

May03

Oct03

Mar04

Aug04

Jan05

Jun05

Nov05

Apr06

Sep06

Feb07

Jul07

Dec07

May08

Oct08

Mar09

Aug09

Months

Ho

usin

g S

tart

s (

in t

ho

usan

ds)

Housing Starts

0

30

60

90

120

150

180

210

Jan00

Jun00

Nov00

Apr01

Sep01

Feb02

Jul02

Dec02

May03

Oct03

Mar04

Aug04

Jan05

Jun05

Nov05

Apr06

Sep06

Feb07

Jul07

Dec07

May08

Oct08

Mar09

Months

Case S

hille

r In

dex (

x)

(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

Gro

wth

(%

)

Case-Shiller Price Index (Composite 20)

Year-on-Year Monthly Growth in Price

Housing Market Automotive Market & Semiconductor Market

N68F-F1 16

End Market Demand

49,84148,37547,25946,162

48,56651,034

48,65645,517

15,932 15,442 16,045 15,756 15,432 15,374 15,48815,679

677

284

647614

576

536495

439

0

10,000

20,000

30,000

40,000

50,000

60,000

2005 2006 2007 2008 2009 2010 2011 2012

Years

Pro

du

cti

on

(000's

)

0

100

200

300

400

500

600

700

Bu

s P

rod

ucti

on

(000's

)`

Car Production LCV Production Bus Production

Every auto produced in the US contains $2700 worth chemicals

4663

39 31 32 39 40 45 43 39

31

42

3227 32

39 40 40 41 40

32

46

3530

3846 44 46 48 49

36

51

4150

61

87 102115 124 127

0.00

50.00

100.00

150.00

200.00

250.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Years

Mark

et

Billin

gs (

$ b

illio

n) Americas

EuropeJapan

Asia Pacific

Housing Market Automotive Market & Semiconductor Market

N68F-F1 17

Focus Points


Economic Indicators


Federal Fund Rate

Crude Oil

Chemicals Index

Analysis of Trends

Analysis by Time






End Market Demand

Conclusions

N68F-F1 18

Detailed Table of Contents


Analysis of Trends

Analysis by Time






Economic Indicators

Global GDP Growth

Bank Lending

Consumer Confidence

US Saving Rate

Crude Oil

Baltic Dry Index

Chemicals Index

Capacity Utilization

N68F-F1 19

Detailed Table of Contents

End Market Demand

Autos

Housing

Semiconductors

Oil Rigs

Conclusions

Concluding Thoughts

About Frost & Sullivan

N68F-F1 20

Next Steps

� Register for the next Chairman’s Series on Growth:

The Growth Excellence Model: Competitive Benchmarking & Growth

Investing (November 3, 2009) (http://www.frost.com/growth)

� Register for Frost & Sullivan’s Growth Opportunity Newsletter and

keep abreast of innovative growth opportunities

(www.frost.com/news)

N68F-F1 21

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