NEW YORK, August 29 /PRNewswire/ --     ICIS Chemical Business magazine has uncovered the extent to which the
growing US debt market crisis has slammed the brakes on the white-hot global
chemical mergers and acquisitions (M&A) market.

"What started with higher defaults in US sub-prime residential mortgages
has now spread to the wider credit market, choking off capital to finance
deals," says Joseph Chang, global editor of ICIS Chemical Business.

"The debt issuance crisis that developed in July will have a significant
impact on all M&A activities in the second half of 2007, but in particular
the activities of the private equity buyers," says Peter Young, president of
New York-based investment bank Young & Partners. "This will really stop the
show - some deals may not go through and others won't be announced."

Private equity players had a strong first half of 2007, capturing 28% of
the total number of deals and 36% of the dollar volume - up sharply from 15%
and 17%, respectively in 2006, according to Young & Partners. Private equity
buyers accounted for five of the top 10 deals in the first half.

"One major impact will be on the level of leverage companies will be able
to take on in a deal," says Telly Zachariades, global head of chemicals at
Bear Stearns. "You might still be able to get transactions done, but they
won't be able to take on as much debt. That will bring M&A valuations down,
which may result in a potential seller not being willing to sell."

Where many buyers were able to get an average of 6-7 times earnings
before interest, taxes, depreciation and amortization (EBITDA) in debt
financing before mid-July, they will now only be likely to get 5-6 times - if
at all, says Zachariades.

The middle market, for deals under US$500m (EUR366m) in size, is also
affected, but to a lesser extent, notes Jean Cayanni, senior managing
director at Cosa Mesa, California-based investment bank RSM EquiCo.

"The leverage available will go down a bit - from an average of 4 times
EBITDA or more, to about 3-3.5 times," he says. "That will have a negative
impact on M&A valuations if private equity firms do not increase their
percentage of equity. However, this is not likely to happen, given the
abundance of funds they need to put to work."

PRIVATE EQUITY CASUALTIES

The debt crisis will throw cold water on new M&A activity.

"2007 will prove to be a two-act play with dramatically different acts,
due to the severe debt and liquidity crisis," says Young. "The debt crisis
that started in the mortgage market has thrown a high degree of uncertainty
around many of these deals. The biggest potential casualties are the private
equity deals that depend heavily on debt financing and in particular,
high-yield public debt."

"It will be a bold move for anyone to kick off a sale process over the
next few months, particularly if the predominant buyer universe is
financial," says Bear Stearns' Zachariades. "There is clearly an opportunity
for corporate buyers with existing unutilized credit lines, or more readily
available access to credit, to regain the upper hand, at least temporarily,
from the private equity community."

FURIOUS NEGOTIATIONS

For those leveraged deals that have already been announced, furious
negotiations are taking place between investment banks and buyout firms, as
the banks try to convince buyers to walk away from their deals.

"Many investment banks are trying to get borrowers to cancel their deals
and are offering to pay the borrowers' break-up fees and expenses," says
Young. "But it is unlikely that the borrowers will agree to do this due to
the damage to their reputations if they back out of a signed deal."

With over US$300bn of financing commitments backed by investment banks
for deals in all industries in the face of a deteriorating credit market, the
available financing capacity to support new debt financings has become
severely impaired, notes Young & Partners.

PEAK OF THE MARKET?

The debt market crisis may signal the peak of M&A activity in chemicals
and across the board.

"The M&A market has peaked," says Bear Stearns' Zachariades. "We won't
see as high leverage or as easy credit terms for a long time and transaction
multiples will decline."

Back in March, Zachariades called the easy credit situation
"unsustainable" and said there would eventually be a "rapid deterioration in
the debt markets."

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For further information please contact:

    Joseph Chang
    Global Editor
    ICIS Chemical Business
    Tel: +212-791-4224
    Email: joseph.chang@icis.com