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Mergers_Acquisitions_Strategic_Acquirer_Chemicals_Industry

Last week, chemical giants Dow Chemical and DuPont, inched another step towards the close of their landmark billion dollar merger, as the United States granted regulatory approval on the deal. The merged entity will be split into three specialized, publicly…

Last week, chemical giants Dow Chemical and DuPont, inched another step towards the close of their landmark billion dollar merger, as the United States granted regulatory approval on the deal. The merged entity will be split into three specialized, publicly traded companies. Both Dow and DuPont have also been divesting their non-strategic businesses.

According to A.T. Kearney, the Dow-DuPont merger and the subsequent split into Agriculture, Material Science and Speciality Products, is one of several examples of chemical companies modifying their portfolios in favour of high-margin, specialized offerings. The chemicals industry is looking at mergers between some major players – Potash Corp and Agrium, Bayer and Monsanto, Linde AG and Praxair Inc, and ChemChina and Syngenta. Consolidation and portfolio realignment will not only enable these companies to compete in shrinking markets, but will also expand their footprint to create value in emerging markets.

Global_Chemicals_Strategic_Mergers_Deals
Source: A.T. Kearney – Chemicals Executive M&A Report 2017

This is why diversified chemicals companies are taking the M&A route to scale and specialize at the same time. The global chemicals industry has seen robust deal activity over the past year, and that momentum has been preserved well into 2017. Moreover, 2017 is witnessing a slew of mega-deals, with deal valuation having touched the $40 billion mark. In the previous decade, deal value had not exceeded $20 billion for any single transaction.

Deal activity within the chemicals industry is revealing a consistent pattern of a focus on acquisitions to extend value chains, or to bring together complementary technologies. In fact, strategic investors have been so consistent in paying top dollar to extract maximum synergies, that private equity is a noticeably small fraction of the buyers’ universe. In addition, investors and analysts are responding positively to mergers that create speciality-focused chemicals companies with higher multiples. For the strategic buyer, a merger represents efficiency, cost savings, scale, access to new markets, and R&D.  In this perspective, and with several mega-deals underway, 2017 could very well be on its way to becoming a record year for deal activity in the chemicals industry.

 

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