2018 Global chemical industry mergers and acquisitions outlook

Executive Summary

The global chemical industry has experienced several years of strong M&A activity, as companies pursued growth, realigned their portfolios, and focused on core competencies. Questions abound: Have consolidation and portfolio realignment achieved their goals for the industry? Will activist investors drive the course of the M&A activities? Will state-owned enterprises begin to impact deal activity? Have valuations driven acquirers out of the market? The 2018 Global chemical industry M&A outlook answers these questions and others.

Regional outlook

• A robust M&A market in the US chemical industry is expected in the coming years as the new tax legislation will provide US-based companies with additional cash flow for investment or other purposes.
• China outbound activity in 2018 is expected to be at the same level or slightly higher than 2017 due to new opportunities arising from the “Belt & Road” initiative; domestic transactions are expected to remain strong as smaller players are acquired in efforts to reduce capacity and increase profitability.
• Despite the uncertainties of Brexit, the UK is expected to remain an attractive market for both corporate and financial buyers in the near-term.
• Deal volume in Germany is anticipated to continue at high levels as companies use their strong earnings to increase their competitiveness through expanding scale, closing portfolio or technology gaps or entering into new customer groups. 
• In the Netherlands, 2018 may be an active year for some larger transactions as large Dutch players have shown an appetite for both divestitures and acquisitions.
• Despite uncertainties such as the entry of shale gas-based chemical products and business into the Japanese market, high levels of M&A activity are expected to continue among Japanese chemical manufacturers in 2018.
• Economic and political uncertainty are likely to have kept foreign buyers from investing in Brazil. Yet, the overall growth forecast, expected favorable exchange rates, higher infrastructure investments and favorable tax rates have started to rekindle investor interest in Brazil´s long-term potential. Activity in 2018 may be higher than in prior years.

Sector outlook

• In the commodity chemicals sector, the continued emergence of state-owned enterprises and traditional oil and gas companies moving downstream is likely to propel scale and synergy-driven M&A plays as well as portfolio rebalancing amongst traditional commodity chemical players to stay competitive. This and other factors will likely drive another active year in M&A in 2018 in this sector.
• In the coatings sub-sector, the flurry of activity highlighted the strong M&A appetite among some of the largest players, despite it being an already comparatively consolidated sub-sector. It is likely that 2018 will see further M&A activity, potentially with involvement from private equity.
• With the adhesive and sealants sub-sector still relatively fragmented, there is likely to be continued consolidation in 2018.
• In industrial gases, 2018 will likely be a fairly quiet year, with the exception of some potentially significant regulatory driven divestitures.
• While the fertilizer and agricultural chemicals sector is largely consolidated, 2018 is likely to hold continued competition regulator mandated divestitures and portfolio realignment arising from past mega-deals, however, further mega-deals in this sector are likely to be limited.

Deloitte’s 360˚M&A experience

Bringing organizations together through mergers and acquisitions, or carving them out through separations and divestitures, are among the most complex business activities an organization will ever undertake. Deloitte is the only professional services firm that can advise strategic corporate buyers and private equity investors throughout the entire M&A deal life cycle with over 6000 advisors in over 150 countries. From conceiving strategy to selecting the right partner. From conducting thorough due diligence to closing the deal. From beginning to end, we align our services to address transactions, integration, and separation needs, all with the goal of generating value for our clients.

Previous versions

• 2017 Global chemical industry mergers and acquisitions outlook
• 2016 Global chemical industry mergers and acquisitions outlook
• 2015 Global chemical industry mergers and acquisitions outlook

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Executive summary

Global chemical mergers and acquisitions (M&A) activity is expected to increase further in 2015, building on a strong year of activity in 2014 that saw 635 M&A transactions with an aggregate value of US$77.8 billion. According to the Deloitte Touche Tohmatsu Limited (Deloitte Global) Manufacturing Industry group’s 2015 Global chemical industry mergers and acquisitions outlook, companies are continuing to realign portfolios and pursue profitable inorganic growth opportunities. In addition, M&A interest is likely to be fueled by stronger corporate balance sheets, liquid debt markets, and continued favorable interest rates.

During 2015, key chemical segments of commodities, intermediates and specialties, fertilizers and agriculture chemicals, and industrial gases are all likely to experience continued growth in M&A activity. Another trend driving M&A in the chemicals industry is the focus on biotechnology and renewables.