Increased M&A activity in North America, specifically in the divestitures of non-performing or non-core assets of international players provides an opportunity to the large Middle Eastern chemical companies to acquire some of these assets, says A T Kearney, a leading global management consulting firm.
Diversification and moving downstream are a critical imperatives for GCC companies and these global developments provide an opportunity to get access to technologies and help these local companies move further in their diversification agendas. In some cases it may also provide market access and market related knowledge, including formulation and technical assistance,” said Ojas Wadivkar, partner, A T Kearney Middle East.
The global chemicals industry is expected to witness an increased number of mergers and acquisitions (M&A) in 2015, according to the fourth issue of the ‘Chemicals Executive M&A Review’ by A T Kearney.
According to the A T Kearney survey of chemical executives and members of the M&A community activist investors are likely to drive the increase in deals, putting pressure on chemical majors to divest assets seen as underperforming.
Especially in North America, activist investors have pushed for portfolio restructuring of large chemical companies with diversified portfolios such as Dow Chemical and DuPont.
“Activist investors are putting pressure on the management of some of the most prominent chemical majors to streamline their business portfolio. So far this trend is most predominant in North America, but as a consequence of increasing fund sizes and a scarcity of underperforming assets in North America, we expect shareholder activism to also grow in Europe and Asia,” said Joachim von Hoyningen-Huene, a partner at A T Kearney and co-author of the report.
Since 2013 deal value of chemicals mergers and acquisitions has increased by 13%. A total 60% of chemicals executives surveyed by A T Kearney see 2015 as the year of increased mergers and acquisitions.
Clearly, this is supported by the closing of the $6.9bn Albemarle Rockwood mega-deal in North America. However, the appetite for chemicals deals in Europe will short term be depressed by current economic climate and political tensions with Russia.
Thomas Rings, partner and co-author of the Chemicals M&A report, A T Kearney, said: “ North America is projected to represent the main share of chemicals mergers and acquisitions in 2015. However, China will be the strongest growing region for chemicals M&A activity in 2015 with expected further consolidation of the local market as well as an increase in geographic expansion and inbound international investments in the critical Chinese market.”
In the foreseeable future, strategic investors continue to form the backbone of M&A in the chemicals industry. The financial factors that will drive M&A in 2015 are healthy balance sheets of chemical companies, limited returns on organic investment opportunities and continued good access to financing.
Strategic key reasons for growing M&A momentum are portfolio streamlining — also driven by activist investors, western chemical companies seeking access to faster growing emerging economies and vice versa, the resurgence of the chemical industry in the US due to low cost feedstock and the continued high level of fragmentation of chemical markets in Asia.
In addition A T Kearney foresees that the sharp drop in oil prices from Brent’s $115 high late June 2014 to a significantly lower level of $50-60 is expected to have a ripple effect on petrochemicals players.
Hoyningen-Huene concluded: “With the current low oil price we expect oil companies to put chemical assets on the market to generate cash. This will create opportunities for chemicals companies interested in the oil industry to buy suitable assets for more reasonable multiples.”