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Mergers and acquisitions in the global chemicals industry expected to continue strong momentum in 2016, says report from Deloitte Global
Spin-off activity and transformational deals likely
NEW YORK, 28 January 2016—Global chemical mergers and acquisitions (M&A) activity is expected to remain buoyant in 2016, building on the strong momentum experienced in 2015, with continued portfolio realignment and consolidation plays in various segments. According to the Deloitte Touche Tohmatsu Limited (Deloitte Global) Consumer & Industrial Products Industry group’s 2016 Global chemical industry mergers and acquisitions outlook, companies have an increased focus on developing their core strengths and are looking to acquisitions to deliver growth and greater shareholder value.
In 2016, key chemical segments of fertilizers and agriculture chemicals, diversified, and industrial gases are all likely to experience an uptick in M&A transactions. “Higher deal volumes are likely as companies use M&A as a tactic to deliver growth to counter challenging business conditions, which are expected to continue in these segments,” said Dan Schweller, Deloitte Global M&A Leader, Chemicals & Specialty Materials Sector. “Moving into 2016, these segments may also see transformational moves, especially after current portfolio adjustments and spin-offs underway are completed. Additionally, competitive pressure to build scale within all segments may drive further activity.”
Other trends driving the increasing portfolio change are tax-free spin-offs and divestitures, as companies position themselves for innovation and growth. “The spin-off momentum is likely to continue in 2016, given the often low tax basis in legacy businesses, resulting in tax-free spins delivering greater shareholder value than straight dispositions,” says Duane Dickson, Deloitte Global Leader, Chemicals & Specialty Materials Sector. “Digital design and Advanced Manufacturing open up new frontiers for materials innovation and potentially threaten historical volumes in some commodities.”
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In the Americas region, the United States is expected to continue to be a prime M&A market in 2016. While there is cautious optimism of a recovering economy in Brazil, it is not likely there will be significant chemical M&A activity during 2016, although lower valuations could generate interest in Brazil from foreign investors with a long-term investment horizon.
Within the European, Middle East, and African region, M&A activity in 2016 will likely be centered in Western Europe as portfolio restructuring continues. In the UK, investor sentiment is expected to remain strong, driving both inbound and outbound M&A activity. In Africa, consolidation will likely continue, underscored by three megatrends including shortage of water, population growth, and an expanding middle class.
Agricultural chemicals, specialty chemicals, and fine chemicals will remain top segments to watch in the Asia Pacific region, especially in China. In Japan, deals that strengthen high margin businesses are expected including those in high performance chemicals, with particular focus on segments, such as life sciences chemicals. Meanwhile, the Indian chemical industry M&A outlook for 2016 will likely be driven by commodity chemicals and significant transaction volumes expected in the specialty and agricultural chemicals segments.
“The relentless pursuit of increasing shareholder value, cost cutting, focusing on core competencies, and capturing additional value by venturing into the solutions space is expected to buttress M&A activity this year and possibly disrupt other industries as a result,” added Schweller.
To view the report, please visit: www.deloitte.com/chemicals.
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