Global chemical mergers and acquisitions (M&A) activity is expected to remain buoyant in 2016, building on the strong momentum experienced in 2015, with continued portfolio realignment and consolidation plays in various segments. Our 2016 Global chemical industry mergers and acquisitions outlook report reveals that companies have an increased focus on developing their core strengths and are looking to acquisitions to deliver growth and greater shareholder value.
Key chemical segments for M&A’s in 2016
- Agriculture chemicals
- Industrial gases
These are all likely to experience an uptick in M&A transactions. Moving into 2016, these segments may also see transformational moves, especially after current portfolio adjustments and spin-offs underway are completed. Additionally, competitive pressure to build scale within all segments may drive further activity.
What trends does the M&A report unveil?
- Tax-free spin-offs
- Digital design
- Advanced Manufacturing
This is as companies position themselves for innovation and growth. The spin-off momentum is likely to continue in 2016, given the often low tax basis in legacy businesses, resulting in tax-free spins delivering greater shareholder value than straight dispositions. Digital design and Advanced Manufacturing open up new frontiers for materials innovation and potentially threaten historical volumes in some commodities.
What is the outlook across different regions?
AFRICA, EUROPE AND THE MIDDLE EAST
Within the European, Middle East, and African region, M&A activity in 2016 will likely be centred in Western Europe as portfolio restructuring continues.
Consolidation in Africa will likely continue, underscored by three megatrends including:
- Shortage of water
- Population growth
- Expanding middle class
With many African countries having resource-based economies, current pressure on commodity prices may significantly slow expansion of the middle class across the continent.
The United States is expected to continue to be a prime M&A market in 2016. While there is cautious optimism of a recovering economy in Brazil, it is not likely there will be significant chemical M&A activity during 2016, although lower valuations could generate interest in Brazil from foreign investors with a long-term investment horizon.
Agricultural chemicals, specialty chemicals, and fine chemicals will remain top segments to watch in the Asia Pacific region, especially in China. In Japan, deals that strengthen high margin businesses are expected including those in high performance chemicals, with particular focus on segments, such as life sciences chemicals. Meanwhile, the Indian chemical industry M&A outlook for 2016 will likely be driven by commodity chemicals and significant transaction volumes expected in the specialty and agricultural chemicals segments.
The relentless pursuit of increasing shareholder value, cost cutting, focusing on core competencies, and capturing additional value by venturing into the solutions space is expected to buttress M&A activity this year and possibly disrupt other industries as a result.
Join in on the discussion. Tell us what you think is driving M&A activity in your region’s chemical industry in 2016.
Download the Global chemical industry mergers and acquisitions outlook report to learn more, or contact Gregory Benjamin – Deloitte Associate Director for Corporate Finance.