Global Chemicals M&A Expected To Increase or End 2019 On Stable Note Despite Economic Slowdown
Spring Back Expected From 2018 Lows Even as Deal Activity Dries Up in Mature Markets
The Urge-To-Merge Expected to Remain Strong in China and Middle East
NEW YORK, Dec. 5, 2019 /PRNewswire/ -- The vast majority of chemicals executives believe that global chemicals M&A activity will continue to increase or stay at the high level of the past several years, according to A.T. Kearney's new Chemicals Executive M&A Report. Thirty-nine percent of the chemicals executives who participated in this year's survey believe global chemicals M&A activity will continue to increase, and 41 percent expect it to stabilize at a high level.
The report provides a review and an outlook for chemicals M&A based on a detailed study of completed and announced deals as well as an executive survey with senior representatives in the industry.
Since the close of last year's mega-deals, the pipeline had dried up significantly: the value of pending deals plummeted 67 percent, driven mainly by the completion of mega-deals such as Bayer's acquisition of Monsanto and the Linde–Praxair merger. The value of announced deals recovered by a moderate 12 percent in 2018, while at the same time the number of announced deals dropped 11 percent—dipping more than 10 percent below the 10-year average.
Compared with last year's survey, skepticism regarding GDP growth has grown: almost 50 percent of executives believe global GDP growth is becoming an impediment to M&A activity. Commenting on the chemicals M&A activity, Thomas Rings, lead partner of A.T. Kearney's Global Chemicals Practice, says, "There is a great deal of uncertainty about the slowing economy and a dampening effect on the appetite for M&A amid China's slow economic growth, the escalating risk of trade wars, and the unresolved Brexit. In this environment, executives view the lack of global GDP growth as a major impediment to M&A activity."
Geographically M&A activity is expected to keep shifting toward emerging markets such as China and the Middle East. After the recent consolidation from mega-deals, largely driven by America and Europe, M&A activity is expected to decline in mature markets. "The appetite for local consolidation as well as downstream development in China and the Middle East are spurring M&A activity in emerging markets," explains Rings.
The M&A landscape is not only experiencing structural shifts regarding geographies, but also investor types: over the past several years, strategic buyers have not left much room for private equity in the chemicals industry. With a financial investor deal share of almost 30 percent in 2018 compared with 7 percent in 2016, this trend is changing. "Private equity investors gained a significant share in 2018. The share of financial investors finally returned to pre-mega-mergers levels," Evelyn Hartinger, principal at A.T. Kearney, explains. "A trend that is expected to continue."
Furthermore, many indicators show that the simple consolidation game in chemicals M&A is over. Consolidation and scale has been the dominant and most cited rationale for the latest wave of mega-deals. In 2019, it is expected to lose ground and only rank third among the deal types with the strongest expected growth. Regional expansion is now the strongest growing deal rationale closely followed by product extension. "With the new dominating deal types and an overall higher need for synergies, companies will need to aggressively leverage the full set of value-creation levers, covering both, top and bottom-line," Rings concludes.
About the Study
The Chemicals Executive M&A Report presents a review of M&A activity based on an analysis of all completed and selected announced deals in the chemicals industry between 2001 and 2018 and provides an outlook for 2019 based on a study of executives at leading chemicals companies, investment banks, and investors. The study was conducted mid-2019.
To read the full report, click here.
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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