Global Chemical Executives Eye Acquisitions, Foreign Markets to Fuel Growth: KPMG Survey

NEW YORK, Sept. 6, 2011 /PRNewswire/ -- In the face of escalating input costs, stiffer competition, and a struggling global economy, chemical industry executives say they will use the significant cash on their balance sheets to pursue strategic acquisitions, invest in technology, and expand into new markets to spur company growth, according to a recent survey by KPMG LLP, the U.S. audit, tax, and advisory firm.  

In the KPMG survey of 142 senior level chemical executives in the U.S., Europe and Asia-Pacific, 66 percent of all chemical executives say their companies will be involved in a merger or acquisition as a buyer in the next two years.  European executives appeared even more bullish, with 71 percent saying they would be buyers.

Chemical Companies Holding 'Significant' Cash

In addition, 70 percent of chemical executives indicate that their companies have significant cash on their balance sheets, intending the cash for acquisitions, technology, and expansion into new markets.  And 80 percent plan to boost capital spending next year, for new products and services, acquisitions, and research and development.   All of the executives surveyed in Asia-Pacific predicted capital spending would increase.  

"Overall, chemical executives are telling us that they intend to put their money to work and boost investment in key areas, and almost two-thirds of executives say they'll invest the capital before year-end," said Mike Shannon, global and U.S. leader of KPMG's chemicals and performance technologies practice.  

"With the struggling global economy, organic growth is a challenge and input prices continue to impact production costs," continued Shannon.  "All of these factors set the stage for increased expansion in emerging markets, M&A, and innovative product strategies as companies look to gain an edge."  

Mix of Regional Investment Targets

As for where they intend to deploy that capital over the next two years, global chemical executives cite India, the U.S., and China as the geographic regions that will be the focus of investment.  However, when analyzing the individual regional responses, U.S. executives favored domestic investment, while European executives favor China, and the top investment region for Asia-Pacific executives is India.

Growth Drivers

When asked about the biggest anticipated drivers of revenue growth over the next three years, chemical executives most frequently cited expansion into new markets, followed by new product development, acquisitions/joint ventures, and organic growth.  However, the top revenue driver differed for each region.  In the U.S., acquisitions/joint ventures and new products topped the list, while European executives cited market expansion, and Asia-Pacific executives cited new products and organic growth.

Forty-two percent of executives say that emerging markets currently account for more than 30 percent of their companies' revenues.  Looking ahead to 2015, the number of executives who predict that the revenues derived from emerging markets will exceed 30 percent rises to 61 percent.

Paul Harnick, KPMG's global COO for the chemicals and performance technologies practice, said, "Executives in Europe and the U.S. are more concerned about the state of the global economy than their counterparts in Asia.  Balancing potential global economic risks with the need to expand overseas to capture growth will be key to success."

Bullish on Revenue

Eighty-five percent of chemical executives in the KPMG survey expect revenue to increase next year, including 27 percent who expect revenue to be significantly higher. Executives in Asia-Pacific were by far the most bullish in their revenue projections, with 96 percent expecting revenue to increase next year, including 49 percent seeing a significant increase and 47 percent seeing a moderate increase.  U.S. executives were the least optimistic of the three regions, although still bullish, with 77 percent predicting revenue to increase in 2012.

"Clearly, executives are telling us that they expect their growth strategies to pay off," said KPMG's Shannon.  "However, they've also identified significant challenges with volatile input prices and increased pricing pressures.  In fact, more than one-quarter of executives in our survey predict their raw material costs will increase by more than 10 percent next year alone, which will certainly impact performance."

Executives also appear optimistic on hiring, with 73 percent saying headcount will increase next year. Again, Asia-Pacific was most bullish, with 96 percent expecting to add headcount, and Europe appeared least optimistic with only 42 percent expecting increased hiring.

THE KPMG CHEMICAL INDUSTRY PULSE SURVEY

The KPMG survey was conducted in June 2011 and reflects the responses of 142 senior executives in the Chemical industry – 53 in the U.S., 38 in Europe, and 51 Asia-Pacific.  Based on revenue in the most recent fiscal year, 20 percent of respondents work for institutions with annual revenues exceeding $10 billion, 46 percent with annual revenues in the $1 billion to $10 billion range, and 34 percent with revenues in the $100 million to $1 billion range.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (http://www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International").  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

SOURCE KPMG LLP