Dubai, UAE -- Global chemical M&A deal values rose by 30% last year to $110 billion, a fourth straight annual increase, laying the ground for an all-time record spike in 2016 according to the fifth edition of A.T. Kearney's Chemicals Executive M&A Report.
The report provides an outlook for Chemicals M&A and analyses the progress of chemical M&A activity over the last decade. In the last 10 years Egypt, Saudi Arabia, Kuwait, and the United Arab Emirates have been prominent Chemicals M&A players in the region. Despite this, deal activity in the Middle East and Africa was small compared to global figures with an approximate total deal value of US$ 1 billion.
Richard Forrest, Lead Partner of A.T. Kearney's Global Energy Practice said: "The continued depressed oil price is a challenge for chemicals companies in the Middle East, their profitability and global competitiveness. Growth of regional chemicals companies is more likely at this point in time to be organic than through mergers and acquisitions. Regional M&A activity is going to be very selective and will focus on opportunities in familiar value chains where scale or critical skills may be acquired at a favourable price as a result of global chemicals conglomerates divesting non-core assets."
Globally the M&A wave comes at the onset of a new era for chemical conglomerates, with diversified chemical companies questioning the value of the traditional diversification model and pursuing more distinct business models, the report said.
The biggest chemicals deal in 2015 was Merck's $17 billion acquisition of Sigma-Aldrich - the largest completed deal since 2009 - followed by ChemChina's $9 billion acquisition of Pirelli.
With two mega-deals already announced - Dow Chemical and DuPont's $130 billion merger and ChemChina's $43 billion bid for Syngenta - and large new transactions likely from emerging market players, total chemical M&A values for 2016 could be double last year's level, the A.T. Kearney report said.
"Driven by the endgame in agrochemicals, 2016 will be the biggest year ever for chemicals M&A, including the largest deal ever in the industry, Dow and DuPont's planned $130 billion merger" said Joachim von Hoyningen-Huene, Partner, Europe, Middle East, and Africa, A.T. Kearney.
"Emerging market players are looking for critical know-how and growth opportunities outside their home markets, and ChemChina's announced bid for Syngenta will not be the last emerging market headline deal of 2016," von Hoyningen-Huene added.
Chemical conglomerate model challenged
Chemicals companies are increasingly seeking to restructure their portfolios In line with agendas of shareholders and activists.
The Dow Chemical/DuPont deal, for example, will restructure the company to form three core business areas in agriculture, material science and specialty products. Commodity oriented players will focus on feedstock and asset scale while specialized players will focus on solution businesses and digital business models.
A.T. Kearney's research identifies five core drivers of the surge in M&A deals: limited returns on organic growth options; favourable feedstock prices especially in the US; lower oil prices; portfolio optimization and pressure from activist investors.
Two-thirds of executives surveyed believe activity will increase in 2016 heralding a new era for chemicals conglomerates as companies look to divest non-core or subcritical assets and pursue scale in core areas through M&A deals. More than three quarters of those surveyed expect an increase in scale plays in value chains in 2016.
North America is predicted to have the strongest increase in chemical M&A activity as low oil prices will benefit specialty chemical producers. The North American shale revolution has brought large quantities of low-cost gas and liquid feedstock to the market, giving U.S. chemical producers have significant advantages over Western European players.
China is also forecast to have a significant increase in deals, primarily driven by outbound transactions as a stabilized Yuan will help Chinese companies to acquire overseas.
"China's influence on the global M&A market is likely to increase in 2016 as more companies look to acquire world-class know-how and growth opportunities outside their slowing home markets. Undervalued targets in mature markets such as Europe are likely to be attractive targets for these acquirers," said Linus Hildebrandt, Principal, Asia Pacific, A.T. Kearney.
M&A across all industries in 2015 reached the highest levels since the 2007 peak, with more than $4 trillion worth of transactions, helped by strong cash positions and low financing costs for acquirers.
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About the Report
The survey was conducted among executives from leading chemicals companies and investment banks between December 2015 and January 2016. Respondents provided their expectations on future M&A market developments on a Likert-type scale. Analysis of M&A activity was based on all completed deals in the chemicals industry between 2005 and 2015, and provides an outlook for 2016.
About A.T. Kearney
A.T. Kearney (www.atkearney.com) is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world's leading organizations across all major industries and service sectors. A.T. Kearney has more than 60 offices located in major business centers across the world. From our Middle East offices in Abu Dhabi, Dubai, Manama, Doha and Riyadh, A.T. Kearney supports both private and public sector clients as well as nations to excel and prosper by combining our regional expertise and global business insights to achieve results. For more information, visit www.middle-east.atkearney.com.
© Press Release 2016
