IHS Chemical Week


Airgas acquisition reflects peaking market, enthusiasm for gases

4:42 PM MST | November 18, 2015 | By VINCENT VALK

Air Liquide’s $13.4-billion acquisition of Airgas is easily among the largest chemicals M&A deals since the recession. The multiple Air Liquide paid, at 13.5 times (x) Airgas’ estimated annual Ebitda, is also indicative of a market that bankers have described as moving through a cyclical peak in valuations – but the industrial gases sector is in many ways its own beast.

Double-digit multiples in large chemicals transactions have become commonplace. Another megadeal – Merck KGaA’s $17-billion acquisition of Sigma-Aldrich – closed this week. Though that deal was announced last year, it involved a multiple of 20.1x Sigma-Aldrich’s 2013 Ebitda, the most recent annual figure at the time. Solvay’s $6.4-billion acquisition of Cytec, announced in July, involved a multiple of 14.7x Cytec’s estimated 2015 Ebitda.

Investors generally like the industrial gases sector, however, and for reasons that don’t always apply to the rest of the chemical industry. Air Liquide itself has a price-to-earnings ratio of nearly 23x, and competitor Praxair’s price-to-earnings ratio stands at about 24x. Compare this with diversified chemical firms – Dow Chemical and BASF both see their shares valued at about 14x earnings. “The industrial gases business remains attractive with concentrated markets, take-or-pay contracts, and a steady stream of new outsourcing customers,” says Jeremy Redenius, an analyst with Bernstein (London).

The deal accelerates that concentration – Airgas is the sixth-largest industrial gases firm by sales globally, and Air Liquide second, according to Redenius. Combined with Airgas, Air Liquide will move slightly ahead of Linde for the largest market share, with Air Liquide and Linde together accounting for about half of the global market.

Considering that, there is little room for further consolidation among larger gases players. Airgas was the subject of a hostile takeover bid by Air Products five years ago – one that valued the company at about 11.3x Ebitda, considerably lower than Air Liquide’s offer – but competitors such as Air Products and Praxair have not seen any offers, or much speculation (although Air Products is spinning off its electronic chemicals business). Packaged gases, Airgas’ largest business, are more fragmented, and Airgas has acted as a consolidator in that business, at least in the US. Still, there are unique dynamics at play in industrial gases. The latest megadeal is in keeping with recent valuation trends, but it may not be a harbinger of any new trends in and of itself.

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