2017 Global chemical industry M&A outlook
Driving forward through global uncertainty
What will 2017 hold for chemical M&A markets? Will global activity remain as buoyant as it has been for several years? Have mega-deals served to satisfy the need for global consolidation? These and other questions will be explored in the 2017 Global chemical industry mergers and acquisitions outlook.
The global chemical industry has experienced several years of strong mergers and acquisitions activity, as companies pursued growth, realigned their portfolios, and focused on core competencies. Mega deals have become the norm with 41 deals valued over US$1 billion over the past three years, as compared to 30 deals between 2011 and 2013. Though valuations have soared, many companies continue to pursue M&A as a strategy to achieve growth and spur innovation. These companies are relying on new sales through innovation and strong synergy capture to help mitigate the higher cost of deals.
Significant availability of affordable credit has helped support the current market’s lofty valuations. Private equity, still a marginal player in the industry, continues to have increased capital to deploy and could play a greater role going forward as global economic conditions strengthen. Among major geopolitical factors, protectionism has emerged as a challenge to robust M&A activity in 2017. As China’s regulations increase over capital outflows and the US faces concerns about heightened insularity, these two large markets may disrupt historical deal activity.
Questions abound: Have consolidation and portfolio realignment achieved their goals for the industry? Are there enough strong companies available to supply the M&A market? Will increasing interest rates begin to impact deal activity? Have valuations driven acquirers out of the market? These questions and others like them will be answered in due course in the global chemicals industry.
- While global Chemical M&A activity is expected to increase in 2017, geopolitical factors could prevent the industry from achieving the record levels experienced in 2015 and 2016.
- Higher cash levels on corporate balance sheets, low levels of innovation, and a low growth macroeconomic outlook are expected to drive M&A volumes.
- Companies are increasingly focused on gaining access to technological capabilities and are creating corporate venture capital (CVC) divisions to help support new investments.
- Fertilizer, agriculture, industrial gases, and diversified chemical segments are expected to continue M&A activity.
- Mega deals valued at over US$1 billion have become more common with 41 deals taking place over the past 3 years, compared to 30 deals during 2011–2013.
- Dealmakers remain optimistic about M&A activity in the US, while it remains depressed in Brazil.
- UK should continue to be an attractive market for both strategic and financial buyers, while German chemical companies continue to focus on acquisitions.
- In Africa, the chemical sector will likely remain influenced by global and local factors including market consolidation and investment into agricultural chemicals.
- In APAC, both inbound and outbound mergers in China will likely increase in 2017, and vibrant M&A activity is anticipated in India due to strong economic growth.