INSIGHT: Players exposed by inability to address megatrends

23 May 2012 17:37  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Chemicals merger and acquisition (M&A) activity may have slowed but researchers and consultants Frost & Sullivan believes that a major specialty chemicals player in Europe will be taken over this year or early next.

Chemical companies may have navigated their way through the 2008-09 downturn extremely well – and benefited greatly from the upturn – but some just don’t seem to have been able to produce a compelling strategy.

They are hanging on to specialties that are rapidly becoming commodities. And globally, there are players with enough cash to make an acquisition attractive.

The chemicals M&A market has slowed and activity fallen from a peak in the second half of last year.

“Perhaps the most tangible evidence of the slowdown is in the number and dollar volume of deals announced but not closed – the best measure of the M&A pipeline,” managing director and president of global investment banking firm Young & Partners said recently. This number has fallen almost every quarter since the first quarter of 2011.

The biggest deal announced thus far in 2012 is Eastman Chemical’s planned acquisition of Solutia for $4.7bn. Both firms are US-based. The biggest deal to close in the 2012 first quarter was the $1.5bn acquisition of Belgium-headquartered amines producer Taminco by private equity firm Apollo management.

But Frost & Sullivan, while recognising the difficult M&A environment, believes that an inability to address megatrends effectively will signal the demise of a Europe-headquartered global Top 100 chemical company.

The company will probably be in specialities and operate in markets which have migrated to the east. The research and consultancy firm has suggested that end-use markets such as textiles and leather chemicals are particularly vulnerable.

Much talked about megatrends present opportunities to chemical producers but also great challenges.

Emerging markets offer growth but also produce a breed of new and confident players keen to make their global mark.

“Targeted consolidation in the chemicals and materials industry continues as one of the main highlights of recent years,” Frost & Sullivan says in a just-released report. “In 2012 we will witness a mega acquisition of a top 100 global chemicals company headquartered in Europe.”

It is not clear whether Frost & Sullivan is making its prediction based on direct evidence or on sector trends. But the research firm is speaking with some confidence.

“Something has got to happen,” Bill Stringer, consultant and practice director for Frost & Sullivan’s chemicals, materials and foods business, said on Wednesday. Some specialty product lines are becoming more commoditised and their owners just do not know how to handle them. They may be better managed in a more commodity-type organisation, he added.

Generally, it is more about portfolio management and the fact that firms are holding on to businesses the markets for which are moving to Asia.

Numerous factors need to be in place for a deal to be successful, of course. And the state of Europe’s banks and confidence on global financial markets weigh against deals being done.

As Young points out, strategic buyers are under pressure to grow, but they are also cautious in an uncertain economic environment.

Moving with the times, though, takes the right mix of positioning and skills. And among Frost & Sullivan’s predictions for 2012 are that markets related to food, mobility and construction will grow in the emerging economies.

“The four mega trends of low carbon economy, health and wellness, functionality and performance, and globalisation define the developments in the chemicals, materials and food industry,” says Frost & Sullivan research director Leonidas Dokos.

The company believes that 2012 will be the year of “green” technology process routes and products and particularly the year of bioplastics. It expects the trend towards “mass customisation” to have an impact on a wide range of manufactured goods and to push strong demand for innovative chemicals and materials.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog


By: Nigel Davis
+44 20 8652 3214



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