Bid & Tender


Global Chemicals M&A to Continue to Increase

A vast majority of chemicals executives believe that global chemicals M&A activity will continue to increase or stay at the high level of the past several years, said global management consulting firm A T Kearney in a new report.


Thirty-nine per cent of the chemicals executives who participated in this year’s survey believe global chemicals M&A activity will continue to increase and 41 per cent expect it to stabilize at a high level, according to A T Kearney’s new Chemicals Executive M&A Report.


The report provides a review and an outlook for chemicals M&A based on a detailed study of completed and announced deals as well as an executive survey with senior representatives in the industry.


Since the close of last year’s mega-deals, the pipeline had dried up significantly: the value of pending deals plummeted 67 per cent, driven mainly by the completion of mega-deals such as Bayer’s acquisition of Monsanto and the Linde–Praxair merger.


The value of announced deals recovered by a moderate 12 per cent in 2018, while at the same time the number of announced deals dropped 11 per cent—dipping more than 10 per cent below the 10-year average.


Compared with last year’s survey, skepticism regarding GDP growth has grown: almost 50 per cent of executives believe global GDP growth is becoming an impediment to M&A activity, the report said.


Thomas Rings, lead partner of A T Kearney’s Global Chemicals Practice, said: “There is a great deal of uncertainty about the slowing economy and a dampening effect on the appetite for M&A amid China’s slow economic growth, the escalating risk of trade wars, and the unresolved Brexit. In this environment, executives view the lack of global GDP growth as a major impediment to M&A activity.”


“Geographically M&A activity is expected to keep shifting toward emerging markets such as China and the Middle East. After the recent consolidation from mega-deals, largely driven by America and Europe, M&A activity is expected to decline in mature markets. “The appetite for local consolidation as well as downstream development in China and the Middle East are spurring M&A activity in emerging markets,” Rings added.


The M&A landscape is not only experiencing structural shifts regarding geographies, but also investor types: over the past several years, strategic buyers have not left much room for private equity in the chemicals industry. With a financial investor deal share of almost 30 per cent in 2018 compared with 7 per cent in 2016, this trend is changing.


“Private equity investors gained a significant share in 2018. The share of financial investors finally returned to pre-mega-mergers levels,” said Evelyn Hartinger, principal at A T Kearney. “A trend that is expected to continue.”


Furthermore, many indicators show that the simple consolidation game in chemicals M&A is over. Consolidation and scale has been the dominant and most cited rationale for the latest wave of mega-deals. That said survey results have shown that executives are expecting 2019 to reflect a decline in consolidation and scale and only rank third among the deal types with the strongest expected growth. Regional expansion is now the strongest growing deal rationale closely followed by product extension.


“With the new dominating deal types and an overall higher need for synergies, companies will need to aggressively leverage the full set of value-creation levers, covering both, top and bottom-line,” Rings concluded.


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