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Chemical M&A deal values rise 30pc to $110bn

DUBAI, March 9, 2016

Global chemical mergers and acquisitions deal values rose 30 per cent last year to $110 billion, a fourth straight annual increase, laying the ground for an all-time record spike this year, according to a report.
 
The fifth edition of A T Kearney's Chemicals Executive M&A Report, provided an outlook for chemicals M&A and analysed the progress of chemical M&A activity over the last decade.  
 
 In the last 10 years  Egypt, Saudi Arabia, Kuwait, and the UAE have been prominent Chemicals M&A players in the region. Despite this, deal activity in the Middle East and Africa was small compared to global figures with an approximate total deal value of $1 billion.
 
Richard Forrest, lead partner of A T Kearney’s Global Energy Practice, said: “The continued depressed oil price is a challenge for chemicals companies in the Middle East, their profitability and global competitiveness. Growth of regional chemicals companies is more likely at this point in time to be organic than through mergers and acquisitions. 
 
"Regional M&A activity is going to be very selective and will focus on opportunities in familiar value chains where scale or critical skills may be acquired at a favourable price as a result of global chemicals conglomerates divesting non-core assets.”
 
Globally the M&A wave comes at the onset of a new era for chemical conglomerates, with diversified chemical companies questioning the value of the traditional diversification model and pursuing more distinct business models, the report said.
 
The biggest chemicals deal last year was Merck’s $17 billion acquisition of Sigma-Aldrich - the largest completed deal since 2009 - followed by ChemChina’s $9 billion acquisition of Pirelli.
 
With two mega-deals already announced - Dow Chemical and DuPont’s $130 billion merger and ChemChina’s $43 billion bid for Syngenta – and large new transactions likely from emerging market players, total chemical M&A values for 2016 could be double last year’s level, the report said.
 
Joachim von Hoyningen-Huene, partner - Europe, Middle East and Africa, said: “Driven by the endgame in agrochemicals, 2016 will be the biggest year ever for chemicals M&A, including the largest deal ever in the industry, Dow and DuPont’s planned $130 billion merger.”
 
“Emerging market players are looking for critical know-how and growth opportunities outside their home markets, and ChemChina’s announced bid for Syngenta will not be the last emerging market headline deal of 2016,” von Hoyningen-Huene added.
  
Chemicals companies are increasingly seeking to restructure their portfolios in line with agendas of shareholders and activists.
 
The report, meanwhile, identified five core drivers of the surge in M&A deals: limited returns on organic growth options; favourable feedstock prices especially in the US; lower oil prices; portfolio optimization and pressure from activist investors.
 
Two-thirds of executives surveyed believed activity will increase this year heralding a new era for chemicals conglomerates as companies look to divest non-core or subcritical assets and pursue scale in core areas through M&A deals. More than three quarters of those surveyed expect an increase in scale plays in value chains in 2016.
 
M&A across all industries in 2015 reached the highest levels since the 2007 peak, with more than $4 trillion worth of transactions, helped by strong cash positions and low financing costs for acquirers, it added. - TradeArabia News Service



Tags: chemicals | acquisition | Kearney | mergers | M&A |

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