2024 global chemical industry mergers and acquisitions outlook has been saved
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2024 global chemical industry mergers and acquisitions outlook
Resilience through the headwinds
In 2023, the chemical industry faced continued economic challenges, leading to a noticeable decline in mergers and acquisitions (M&A) transactions—the lowest in a decade. Although interest rates largely stabilized throughout 2023, they remain elevated, keeping the cost of deal financing high and putting pressure on M&A activity. Despite these headwinds, there’s optimism that resilience and adaptation may foster a stronger performance in 2024.
Explore content
- Taking stock of the evolving chemical industry M&A landscape
- Notable transactions in the key chemicals sectors in 2023
- Explore the outcomes of the chemicals M&A survey
- Three years of historical data and perspective
- Resilience: A steppingstone to robust chemicals M&A activity
Taking stock of the evolving chemical industry M&A landscape
As our outlook from 2023 indicated, the year commenced with significant challenges for the industry. These headwinds led to a 16% decrease in global chemicals M&A transactions from 2022, marking the lowest level in a decade. The decline was even more pronounced when compared to the pre-COVID-19 five-year average (2015–2019), with a 26% drop in chemicals M&A volumes.
Despite the sluggish M&A activity in 2023, it’s important to note that these trends mirrored the broader global M&A markets, reflecting the impact of wider economic and geopolitical conditions. Interest rates largely stabilized in 2023, with major central banks, including the US Federal Reserve and the European Central Bank, easing up on their rate hikes as inflation pressures eased. However, elevated interest rates persisted, increasing the cost of financing deals and exerting pressure on M&A activity.
Looking for a deeper dive into what potentially lies ahead this year for chemical industry mergers and acquisitions? Download the 2024 global outlook.
Notable transactions in the key chemicals sectors in 2023
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Commodity chemicals
In the commodity chemicals sector INEOS was active, announcing two of the more significant acquisitions in the sector for 2023. In September, it announced the acquisition of Eastman’s Texas City site, which includes a 600kt acetic acid plant, and in December it announced the acquisition of LyondellBasell’s ethylene oxide and derivatives business and production facility at Bayport, Texas, for US$700 million.
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Specialty chemicals and materials
While M&A activity in the specialty chemicals and materials sector was still down for the year, it fared better than other sectors, decreasing 9% in the number of M&A transactions from the 2022 total and decreasing 22% compared to the pre-COVID five-year average (2015–2019). Buyers tended to stick to acquisitions where they saw sustained long-term end-market tailwinds, despite the challenging current environment. DuPont’s announcement in May of the US$1.75 billion acquisition of Spectrum Plastics Group was one example of this, with Spectrum Plastics offering “specialized materials and solutions into attractive end markets with long-term secular growth trends.”
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Fertilizers and agricultural chemicals
Despite ongoing geopolitical conflicts in Europe, demand for base agricultural fertilizers and nutrients remained steady, underpinned by relatively strong agricultural commodity prices. OCI Global (OCI) announced two significant transactions in December. The first transaction announced was with Abu Dhabi National Oil Company (ADNOC) in which ADNOC will acquire OCI’s entire majority share in Fertiglobe plc for US$3.62 billion plus an earnout mechanism. Fertiglobe plc is one of the world’s largest ammonia and nitrogen producers and exporters. OCI also entered into an agreement for the sale of its entire equity interest in Iowa Fertilizer Company LLC (IFCO) to Koch Ag & Energy Solutions (KAES) for US$3.6 billion.
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Explore the outcomes of the chemicals M&A survey
Our survey polled 49 executives at chemical companies across sectors and geographies between January 11, 2024, and January 26, 2024, to assess M&A sentiment and future M&A plans. Read a summary of the results and key insights from the survey.
Do you anticipate your company undertaking any mergers or acquisitions over the next 12 months?
While 86% of the chemical executives surveyed were at least somewhat likely to undertake a merger or acquisition in 2024, that is compared to 91% in last year’s survey and 100% in the 2022 survey. Furthermore, the number of those surveyed who answered “Yes, very likely” has decreased from 79% in the 2022 survey, to 65% in the 2023 survey, to 43% in this year’s survey. These trends point to a clear sign that the chemical executives are less bullish on undertaking a merger or acquisition heading into 2024 in comparison to prior years.
Interestingly, the drivers of their company’s acquisition strategy have remained fairly consistent over the past several years. Expansion of portfolio/technical capability was the most cited acquisition driver for the fourth year in a row. This was followed by geographic expansion for the second year in a row. For the second year in a row, meeting your company’s sustainability/ESG goals or increase your ability to offer customers carbon-neutral/sustainably produced products was cited as a driver of their M&A strategy by less than 20% of executives.
When asked which end-markets they view as the most attractive from an acquisition perspective, survey respondents have been fairly consistent over the past several years. Once again, electronic materials was selected as one of the most attractive end markets, with nearly 30% of survey respondents ranking it in their top two choices.
Although popular in prior-year surveys, both construction materials and health care/beauty/life sciences moved up in terms of attractive end markets in this year’s survey, receiving a top two ranking by 24% and 26% of survey respondents, respectively. With some significant tailwinds in technology, life sciences, and construction/infrastructure spending, it is no surprise that these resulted in the most popular acquisition-target end markets, and we have seen several examples of chemical companies pursuing acquisitions in these end markets in 2023.
How competitive do you believe the current climate is for making acquisitions?
The competitive sentiment among survey respondents stayed relatively subdued, with only 18% responding that the current acquisition climate is very competitive and no respondents that thought the current acquisition climate is extremely competitive, which was similar to responses in last year’s survey. However, this is down from our survey heading into 2022, in which 88% responded that they believed the acquisition climate was either extremely competitive or very competitive. This sentiment could be one reason why we have observed many chemical companies in 2023 pausing or extending the timeline with potential carve-outs and divestitures, waiting for the competitive acquisition market to return.
We also asked what chemical executives saw as the biggest hurdle to their companies participating in merger or acquisition activity in 2023. Continued price dislocation/valuation expectation gap between buyers and sellers received top marks as the biggest hurdle, noted by 37% of survey respondents, followed by a lack of quality acquisition opportunities in the market, from 27% of survey respondents.
However, both cost of lending/constrained capital markets and lack of internal capital/cash flow to support acquisitions were cited by a combined 20% of chemical executives as their biggest hurdle to participating in the M&A markets in 2023. Despite there being a clear valuation gap between buyers and sellers and lack of quality M&A opportunities available, many chemical companies are simply not participating in the M&A market due to a lack of capital available (either internal or external).
Do you anticipate your company undertaking any divestitures (including spinoffs) over the next 12 months?
For the fourth straight year, chemical executives surveyed were not as bullish on undertaking a divestiture as they were on undertaking a merger or acquisition. Chemical executives were similarly bullish on divestitures compared to last year, with 57% saying their company is either very likely or somewhat likely to undertake a divestiture over the next 12 months. Noncore portfolio pruning was once again the top-cited driver of company’s current divestiture strategy, noted by 93% of survey respondents.
This was followed by underperforming assets, which was cited by 60% of chemical executives as a driver of their company’s current divestiture strategy. Given the financial stress experienced in the industry over the past 12 to 18 months, it is no surprise that chemical executives are assessing certain underperforming businesses and assets for potential divestiture. Interestingly, nonproduction assets was cited by 21% of survey respondents as a driver of their divestiture strategy, compared to only 7% last year and 0% the year before. This aligns with a trend we are observing in the industry of chemical companies attempting to monetize their infrastructure, such as tanks, pipelines, rail cars, terminals, and site service arrangements.
What are your company’s primary/top focus areas over the next 12 months?
Unsurprisingly, for the fourth year in a row, organic growth was selected as the top focus area over the next 12 months, with 20 respondents ranking it as their top priority and 31 respondents, or 63%, ranking it among their top three priorities for 2024. Like last year, liquidity/cost reduction/working capital efficiency finished as the second-most-noted top focus area over the next 12 months with nearly 25% ranking it as their highest priority and more than 50% ranking it as one of their top three priorities. As such, it is likely we will see chemical companies continue to focus their attention inward and turning around their oftentimes fledging financial results, with less time focused on M&A.
Once again, small strategic acquisitions was ranked as a top three priority by three times more chemical executives compared to large transformational acquisitions, pointing to the trend continuing into 2024 of smaller tuck-ins or bolt-on acquisitions versus large transformational deals.
One positive change from the two prior surveys is that only 10% of survey respondents ranked remedying supply chain disruptions among their top three priorities. This is down from 23% last year and 27% the year before—an indication that the supply chain issues that have plagued many in the chemical industry since the pandemic have largely subsided.
While sustainability/ESG/decarbonization goals continue to get a lot of the headlines in the industry, it has been cited as a top three priority by less than 25% of survey respondents for two years in a row. This again points to the fact that while sustainability and achieving decarbonization goals are important priorities to chemical companies, they are a lower priority this year as many chemical companies focus on improving financial performance. In our survey, we also asked chemical executives where they see chemical companies having the biggest impact in the energy transition and decarbonization.
Survey respondents overwhelmingly selected utilizing lower-carbon energy or materials in production and developing and/or commercializing products focused on circularity as their top choices, while investing in startups or other nascent technologies or products akin to traditional venture capital was only selected by seven executives, totaling less than 15% of our survey respondents. This confirms our expectation that chemical companies will continue to focus their sustainability and energy transition efforts by lowering the carbon impact of their own production and commercializing new lower-carbon or circular products for customers through both formal and informal partnerships and/or feedstock and offtake agreements versus through traditional M&A.
Three years of historical data and perspective
A broader view can sometimes reveal deeper trends. Tap insights you may have missed from the previous three years of our global chemical industry mergers and acquisitions outlooks.
- 2023 Global chemical industry mergers and acquisitions outlook
- 2022 Global chemical industry mergers and acquisitions outlook
- 2021 Global chemical industry mergers and acquisitions outlook
Resilience: A steppingstone to robust chemicals M&A activity
We are starting to see some green shoots of better days ahead, leading to some optimism. In general, we start 2024 with what appears to be a reduced M&A pipeline and appetite, and our chemicals M&A forecast remains tempered until there’s more clarity around improved financial performance in the industry.
However, despite the current cyclical downturn, the long-term outlook for chemicals remains strong. Additionally, the fundamental hypothesis that the right M&A moves by chemical companies can create outsized returns remains intact—ultimately drawing the conclusion that the rebound in chemicals M&A activity is simply a matter of when, not if.
If you’d like to talk about how your business can elevate its chemicals M&A strategy this year, let’s set up a conversation.
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