Emerging regions to dominate chemical industry M&A activity - KPMG

13 June 2011 08:52  [Source: ICIS news]

SINGAPORE (ICIS)--Emerging markets will increasingly dominate merger and acquisition (M&A) activity in the chemical industry in the years ahead, supported by the growth of end markets, government policies and access to funding, business advisers KPMG said on Monday.

“Already, M&A in BICME countries (Brazil, India, China, Middle East) have increased from 5% of deal value and 17% of deal volume in 2007 to 30% of deal value and 28% of deal volume in 2010,” the firm said in a report on its website.

Several key chemical end markets in the west are continuing a shift to the east, the report said.

“The textile industry has been firmly based in the east for many years, and now suppliers from the west are being acquired,” it said, citing the acquisition of German firm Dystar – one of the world's largest producers of dyes – by India’s Kiri Dyes & Chemicals, in 2010.

The automotive industry appears to be rapidly following suit, with China overtaking Japan as the world’s largest car maker in 2009. China then overtook the US as the largest automotive market last year, according to KPMG.

Automotive sales growth in China is forecast to average 15% over the next few years, the firm said in its report.

“This is affecting chemical producers through the eastward relocation of some of the established OEMs [original equipment manufacturers], such as Ford's new assembly plant in Chongqing [China],” it said.

“Another factor is the rise of new, emerging market manufacturers, with the recent acquisition of Volvo by Geely of China being a notable example,” the report added.

In India, domestic automakers will add almost 1m units of new vehicle assembly capacity before the end of this year, “clearly providing new opportunity for local chemical producers,” KPMG said.

The construction industry in emerging markets also shows tremendous growth potential, the firm said.

Construction spending in China continues to be driven by mass urbanisation with tens of millions of people moving from the countryside each year, it said.

“The Chinese urban population is likely to reach 600m by 2025. In Brazil, the World Cup of 2014, followed by the Olympics of 2016, will generate massive infrastructure growth and new demand for chemicals used in construction,” KPMG said.

Emerging market growth for pharmaceuticals, agrochemicals and consumer products is also on the rise, driven mainly by a rapidly expanding middle class, particularly in India and China, the firm added.

BICME chemical companies are increasingly looking to acquire new technology, to fully capitalise on the growing demand in downstream industrial markets, particularly at the specialty end of the chemical value chain. “As a result of this technology drive, we expect M&A activity to accelerate in BICME countries over the coming years,” KPMG added.

 “By 2020, if we continue to see the rapid growth of companies such as SABIC, Sinopec, Sinochem, Reliance, Saudi Aramco, Braskem and others, up to seven of the ten largest chemical companies could be based in BICME countries as the current largest players pursue profitability over scale,” the report said.

“Recognising this trend will be imperative for chemical companies developing long-term M&A strategies now and in the years ahead,” KPMG added.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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