Press releases

Deloitte report: M&A provides growth catalyst for chemical industry in 2013

Published: 3 June 2013

Despite challenges associated with energy and feedstock volatility and regulatory policies, the global chemical industry is poised for modest growth in 2013 with merger and acquisition (M&A) activity likely to be a key factor in helping companies achieve top line growth. According to a new report from Deloitte, 2013 Global Chemical Industry Mergers and Acquisitions Outlook, the global chemical industry is experiencing a portfolio realignment putting increased pressure on companies to find new growth markets.

“We are looking at a market for 2013 and beyond where the financial influences of globalization, China’s market maturation, and raw materials trends will position M&A as a highly effective strategic tool,” says Dan Schweller, Global Manufacturing Industry M&A Leader for Deloitte .

The report identifies multiple factors driving growth of M&A activity around the world particularly for North America, Europe, and China including new markets, shale gas discoveries and the progression of the Advanced Materials Systems industry. This is in spite of continued Eurozone concerns and slow recovery in other mature markets.

China
For the year ahead, the Deloitte report signals that China’s chemical sector will likely continue to grow, but at a slower pace compared to the boom between 2000 and 2010. Structural imbalances evidenced by overcapacity in certain segments are factors likely to drive Chinese companies to identify and fill market gaps, as they strategically pursue M&A as a means to raise the future value of a company.  

Overall, organic growth for the industry will likely be modest, enabling M&A to play a prominent role in driving growth in 2013. "Global Chemical companies are expected to place a greater focus on realigning their portfolios and investments to capture above average revenue growth and capitalize on new market opportunities in China on given high-value applications or product lines (technologies)" said Mr. Yann Cohen, Deloitte China Chemical Managing Partner.

But the major change of mind-set is occurring around domestic Chemical players and international private equity firms.

Chinese chemical companies now look at not only overseas but also domestic acquisition, realizing that small- and mid-sized specialist players have started to emerge with distinguished capabilities (often potential targets of foreign companies!). "In parallel of searching for complementary capabilities (vertical and / or horizontal integration), we start to see a consolidation trend in given Chemical segments where domestic players either acquire or push away some other existing players" adds Yann Cohen.

A growing number of international private equity firms, as well as domestic ones, are currently actively investigating the Chinese Chemical industry to identify attractive targets, typically surfing the mega-trend wave. Likewise, chemical companies in China have also become increasingly aware of the capabilities that a strategic buyer can bring to the table to raise the future value of their own company in the medium term, without mentioning the potential facilitation support to complete overseas transactions with complex barriers..

North America
In North America, chemical industry M&A activity has undergone a dramatic shift and the upswing is expected to continue. The recovery of the construction market, shale gas availability and lower feedstock prices will likely play a role in increased M&A activity in 2013.

The Deloitte report also predicts continued stamina for top-chemical commodity producers to consider new facility expansion and to restart suspended facilities in North America.  Top global chemical manufacturers are expected to invest more than US$40 billion in such projects over the next several years.

“The North American chemical industry is showing dramatic change, attributable in part to favorable shale gas economics supporting the petrochemical sector,” said Duane Dickson, Global Chemicals Sector Leader for Deloitte. “Companies that were looking to the Middle East and Asia for M&A investments just a few years ago are now turning their attention to growth opportunities in North America.”

Europe
In Europe the chemical industry is among the most active sectors pursuing M&A opportunities, the report yields. Companies with liquidity are making acquisitions to transform their business and execute growth strategies. Key drivers of this activity include strong balance sheets, companies eager to build market positions in core areas, continued portfolio realignment, and an increased focus on international investments, especially in emerging markets.

A number of struggling companies, on the other hand, have been focused on improving operational processes to increase financial performance. In addition, some stressed companies are forced to consolidate, a move driven by the disposal of non-core assets to raise cash to reduce excess capacity and rationalize facilities.

To download a copy of 2013 Global Chemical Industry Mergers and Acquisitions Outlook, visit http://www.deloitte.com/cn/2013gbchemma

(Traditional Chinese version)
Did you find this useful?