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Deal Activity Down In The Third Quarter

I thought the news flow had been a little slow lately.

PricewaterhouseCoopers has released its quarterly Chemical Compounds newsletter that tracks merger and acquisition activity. It looks like we are in the middle of a full-fledged deal slump.

There were 22 chemical deals worth $50 million or more in the third quarter of 2010, the accounting and consulting firm reported. During the second quarter, there were 31 deals of that size. The last time there were 22 or fewer deals was in the second quarter of 2009, right at the tail end of the credit crunch/recession.

Average deal size actually increased during the quarter, from $476.4 million in Q2 versus $725.6 million in Q3. But the Q3 number is a little on the low side historically. Moreover, four deals weighing in at over $1 billion drove up the figures. These are Ecolab’s purchase of Nalco ($8.1 billion); Tronox’s merger with Exxaro’s mineral sands unit ($1.3 billion); Lonza’s offer for Arch Chemicals ($1.2 billion); and OM Group’s acquisition of Vacuumschmelze ($1.0 billion).

[I know what you’re thinking: What the heck is a Vacuumschmelze? No, it isn’t that gunk you find when you clean out your Hoover; it is a German magnetic materials maker.]

The pace of chemical making was especially slow in Q3 for private equity firms. Financial buyers accounted for only 1.25% of the total of $16 billion in transactions. This is the lowest level ever since PwC started tracking M&A in 2006. “This shift may be due to the relative advantage that strategic investors have given their ample cash stockpiles, in addition to generally higher valuations in the sector,” PwC said in the report.

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