2014 was a robust year for global chemical M&A. As in many other industries, low interest rates and plentiful credit boosted global chemical M&A activity, resulting in strong performance in terms of deal flow and deal value compared to 2013. Most notably, in 2014, there were at least 13 acquisitions over US$1 billion in value, which totalled over US$52 billion in value, compared to just 8 such deals in 2013, which totalled just US$13.6 billion.
The strength of global chemical M&A over the last year has industry watchers wondering if 2015 will bring more of the same. Deloitte’s 2015 Global Chemical Industry Mergers and Acquisition Outlook (the Report) identifies important trends for global chemical M&A and predicts that as the year unfolds, global chemical M&A will continue to build on the momentum seen in 2014. Some of the Report’s key findings are summarized below.
Increased cross-border activity
Since 2009, the value of cross-border chemical M&A has generally been on an upward trend. Deloitte predicts that cross-border chemical M&A activity will remain healthy through 2015, as chemical companies move to match the increasingly global footprint of many of their customers and are buoyed by stabilizing macroeconomic conditions. Chemical companies based in regions where economic growth has been stagnant or limited may look to M&A opportunities in foreign markets to drive growth. However, with greater cross-border consolidation, chemical companies may encounter issues such as additional regulatory scrutiny and foreign currency exposure.
Shareholder activism has been on the rise across many sectors, and the global chemical industry is no different. The Report notes that chemical companies have attracted avid interest from activist investors, who now hold stakes in at least 12 chemical companies. The influence of activist investors is most noticeable in the United States, but it is likely that activist investors have European chemical companies in their sights as well. Activist investors are often a catalyst for change, and their presence in the chemical industry may influence M&A activity. For example, activist investors may push businesses to divest themselves of underperforming or non-core assets.
Breakdown by segment
The chemical commodities segment has long dominated overall chemical M&A activity, but will likely only experience modest growth in 2015 as the segment matures. The Report anticipates that fertilizer and agricultural chemicals segment will see the highest growth in M&A activity in 2015 compared to other segments, as global population growth and food scarcity necessitate greater agricultural output. As fertilizer and agricultural companies seek greater economies of scale and wider distribution for their products to meet increased demand, they may turn to M&A to achieve these goals.
Impact of cheaper oil
The chemical industry relies on oil and natural gas as feedstock. While chemical companies will certainly welcome lower input costs, the impact of cheaper oil on global chemical M&A is uncertain, as is the correlation between lower oil prices and lower chemical prices may take some time to manifest itself.
Assuming that lower oil prices persist over the medium to long-term, the Report forecasts delays in consummating petrochemical deals, as sellers enjoy the upside of lower input costs before chemical pricing aligns with feedstock costs, and buyers reluctantly adjust their financial models to account for the impact of cheaper oil on the chemical company valuation.
In other respects, lower oil prices may spur chemical M&A activity. For example, oil producers may pursue vertical integration strategies to protect themselves against falling oil prices. Moreover, if lower oil prices do indeed boost the profitability and share price of chemical companies, shares may become the currency of choice in an increasing number of acquisitions.
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