Markets

Global chemicals M&A to rise 41pc

DUBAI

A vast majority of chemicals executives believe that global chemicals mergers and acquisitions (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 its Chemicals Executive M&A 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 stabilise at a high level.

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, scepticism 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.

“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 rationale for the latest wave of mega-deals. 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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