A.T. Kearney Predicts All-Time Record Year for Chemicals M&A

Conglomerate portfolio restructuring is driving divestiture and M&A activity

Mar 08, 2016, 09:00 ET from A.T. Kearney

CHICAGO, March 8, 2016 /PRNewswire/ -- Global chemicals M&A deal values rose by 30 percent last year to $110 billion, a fourth straight annual increase, laying the ground for an all-time record spike in 2016, according to the fifth edition of A.T. Kearney's Chemicals Executive M&A Report.

With two mega-deals already announced—Dow Chemical and DuPont's $130 million merger and ChemChina's $43 billion bid for Syngenta—and potential large new transactions generated by emerging-market players, total chemicals M&A values for 2016 could double last year's level.

Chemicals conglomerates and investors are challenging old models

The M&A wave comes as chemicals conglomerates and their investors question the value of the traditional diversification model and look for stronger coherence in their portfolios.

"Chemicals companies are taking a fresh look at their portfolios, divesting assets that do not fit with a clear portfolio logic. At the same time, they are looking for increased scale in their remaining businesses, driving increased M&A," said Andy Walberer, A.T. Kearney partner and leader of the firm's Americas chemicals practice.

The move toward the "endgame" in agrochemicals is under way

Nowhere is the trend of increased focus and scale playing out more clearly than in the agricultural chemicals and seeds market, where multiple players are competing for one of the few "endgame" positions.

"Dow and DuPont's planned merger and subsequent split into three focused companies will create a dominant leader in the agriculture industry and starts to shut the door on future M&A activity by competitors. ChemChina's bid for Syngenta is clearly a move to lock up one of the few remaining positions in the agricultural sector," said Guttorm Aase, A.T. Kearney principal and co-author of the report.

Factors driving chemicals sector M&A

Based on A.T. Kearney's research, chemicals executives see five core drivers of the surge in M&A deals: limited organic growth options; favorable feedstock prices, especially in the United States; lower oil prices; portfolio optimization; and pressure from activist investors.

Executives see the lack of organic investment options as the number-one factor driving M&A. Chemicals executives noted that valuations for publicly traded companies were high in 2015 compared to historical averages. To sustain the valuations, chemicals companies must demonstrate an ability to grow earnings. In this environment, growth is hard to achieve organically, leading many companies to seek M&A deals.

Regional trends

The report shows that while North America is the largest market for chemicals M&A activity, China is a close second and is rapidly growing as a source of M&A. Emerging-market investors, especially Chinese investors, are making aggressive plays for capabilities and IP by acquiring mature market players with low valuations.

"China's influence on the global M&A market is likely to increase in 2016 as more companies look to acquire world-class know-how and growth opportunities outside their slowing home markets. Undervalued targets in mature markets, such as Europe, are likely to be attractive targets for these acquirers," said Linus Hildebrandt, A.T. Kearney principal, Asia Pacific.

About the report

A.T. Kearney's report is based on surveys and interviews with executives from leading chemicals companies, investment banks, and funds between December 2015 and January 2016. Analysis of M&A activity was based on all completed deals in the chemicals industry between 2005 and 2015. The report provides an outlook for 2016.

About A.T. Kearney

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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SOURCE A.T. Kearney



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