A surge of mega deals is approaching and will accelerate the “merger endgame” in multiple chemicals markets.
United Arab Emirates, Dubai, 21 March, 2017: Record-high M&A activity is set to transform the chemicals industry in 2017, according to A.T. Kearney’s new Chemicals Executive M&A Report. More than $300 billion of chemicals M&A deals are in the pipeline of which four pending mega deals represent 75 percent. Each of these large deals (Dow-Dupont, Bayer-Monsanto, ChemChina-Syngenta, Praxair-Linde) is valued between $40-70 billion, two to three times larger than any single deal seen in the past 10 years.
“The planned mega deals highlight a broader trend of diversified chemicals companies shifting their portfolios toward more pure play models. This shift is incentivized by the higher multiples investors award to this type of chemicals companies and a quest to reap the benefits of increased market reach, capabilities, and efficiency,” said Dr. Joachim von Hoyningen-Huene, partner at A.T. Kearney and co-author of the report.
Globally, C hina and the United States represented 44 percent of all chemicals M&A deals in 2016. The activity of Chinese acquirers has steadily increased and made China the number one country of origin for transactions, representing 24 percent of all deals. Chinese Chemicals M&A is driven mainly by domestic consolidation (20 percent of all global deals) and acquisitions of Western technology leaders.
“The Middle East represents only 2.2 percent of global chemicals M&A value in 2016, but the years ahead offer strong opportunities for regional companies. Access to attractive feedstock combined with a regional move to downstream chemicals is set to increase demand for the right assets. As global chemicals companies continue to refocus their portfolios, non-core assets are likely to become available. We expect that regional companies will be able to benefit from these divestitures and pick up good deals which will fit their portfolio strategy,” commented Thomas Rings, lead partner of the A.T. Kearney energy practice in the Middle East and co-author of the report.
More than 80 percent of chemicals executives surveyed for the A.T. Kearney report identify access to advanced technologies or application know-how as the main drivers for continued strong international M&A. In contrast, 37 percent say economic volatility is the largest potential impediment to future M&A growth.
“With continued uncertainty and volatility of oil prices chemicals companies are facing difficult questions about what their business environment will look like in the next 12 to 24 months. Despite these uncertainties, we see companies in this region well positioned to benefit from the arising global M&A opportunities. Deals which provide access to new chemicals value chains, global markets and technologies will be the most attractive to regional companies,” concluded Thomas Rings.