The shockwave from the subprime mortgage fiasco threatens the U.S. and world economy. It also could put a halt to a buying spree in the rubber industry and related sectors.
Investment funds flush with cash have found the chemical- and automotive-related businesses to their liking in recent years. Liking typically is equated with an acquisition target that is underperforming, available at a good or fire-sale price, with the potential for growth or, at least, a nice return when the investment is cashed in.
Private equity firms like Wynnchurch Capital, GS Capital Partners, Carlyle Group, Centerbridge Capital Partners, Kinderhook Industries, Audax Group, Sun Capital Partners and others have spent large sums to acquire control or at least an interest in rubber product makers. It's happened on the supply side, too, with firms such as Excel Polymers and Columbian Chemicals Co.
Things are changing, though.
Investment money, particularly in the form of the bank loans equity funds frequently use for acquisitions, is getting tight. Banks are suffering mightily from their gambling on high-risk home loans. They won't-can't-be as amenable as in the past to helping fund acquisitions that often are risky ventures themselves.
That could put a damper on equity funds' activities in the rubber sector.
Also, many of the prime acquisition targets-such as Goodyear Engineered Products, Cooper-Standard Automotive, GDX Automotive-have been snapped up. While it's true just about anything is for sale if the price is right, the field of candidate companies has been greatly reduced.
That doesn't necessarily mean the rate of buying and selling in the business will decline. Manufacturers and suppliers will continue to mine the business for bargains that fit with their operations, something they've done at a fairly rapid pace in the past few years. And, of course, the weak dollar is sure to attract more investment into the U.S. from the foreigners looking for opportunities.
They do have to do something with all that money.