The chemical industry has witnessed significant M&A activity over the past decade, with approximately 20% of industry revenue changing ownership due to consolidations and portfolio extensions. While traditional drivers like consolidation and portfolio extension remain key, the nature of M&A is evolving as companies seek to address volatility and transition to a more sustainable future.
Key findings:
- M&A activity: The industry has seen several spikes in M&A activity due to large transactions like Dow-DuPont and Bayer-Monsanto, alongside steady activity throughout the decade. Over 760 deals with a total value of US$1.1 trillion were analyzed.
- Geography: Most deals occur within companies' home regions, with 75% of North American deals involving North American companies and 55% of European deals involving European companies. Notable cross-regional activity includes Europe-Asia and North America-Asia transactions.
- Buyer motivations: Consolidation (35%) and portfolio extension (32%) are the top two drivers, indicating a risk-averse approach focused on familiar businesses. Forward/backward integration (11%) is also a significant driver.
- Seller motivations: Over half of transactions involve selling entire companies, with "investor exits" (43%) and "synergies" (25%) being the most common reasons. Financial opportunity (43%) and the potential for buyers to pay premiums (26%) are also key factors.
- Early-mover advantage: Data suggests potential early-mover advantage in consolidation waves, as multiples for acquired businesses tend to rise as a wave progresses. However, this is not definitive and depends on various factors like asset quality and market conditions.
- Private equity: Private equity has played a significant role in the chemical industry's M&A, executing US$16 billion to US$23 billion in transactions annually, accounting for 9% to 43% of total transaction value. They have been effective in restructuring and optimizing operations, often achieving higher multiples than chemical company sellers.
- Greenhouse gas emissions: GHG emission reductions are emerging as an important factor in M&A decisions. Companies are increasingly selling GHG-intensive businesses with lower financial returns, such as fertilizers and synthetic rubber, to meet net-zero goals. This trend suggests GHG considerations are gaining influence in M&A decisions.
Recommendations for chemical companies:
- Treat M&A as a core capability with an end-to-end perspective.
- Deploy technology to capture M&A value through data-driven insights and automation.
- Complete restructuring efforts and build leadership networks before a sale.
- Apply a fact-based approach to valuate GHG implications of M&A.
- Have a targeted approach to people and culture, focusing on effective change management.
