Think tank: Restructuring in Europe and China's technology push to drive chemical M&A

05 April 2013 09:23  [Source: ICB]

Chemical companies in Europe have a lot to fix, and players in Asia want to match the efficiencies and business practices they see in the west. These twin factors, at least, are expected to drive chemicals merger and acquisition (M&A) activity in the near term.

Europe's weak economic environment and uncertain industrial outlook are prompting more corporate restructuring. Portfolios are being realigned with added value specialties largely the target.


China-based chemical firms are seeking access to technology

Copyright: RexFeatures

And there are many relatively new medium-sized chemical companies in China wanting to compete more effectively in a tougher international environment. One way or another they need to acquire the tools to do the job.

The number of M&A deals in chemicals last year was, perhaps surprisingly, only just under the number in 2011 and not far from the peak seen in 2008.

Data from M&A advisors The Valence Group show that the number of announced transactions in 2012 matched those in 2006. In terms of value, chemicals M&A dealmaking was relatively flat in 2012 compared with 2011.

Many companies have the cash available to do the deal so it is economic and industry uncertainty, largely, alongside opportunity, that is holding them back.

There were 64 chemical sector deals with a value greater than $100m announced last year compared with 85 in 2007 and 60 in 2008, data from the Valence Group show. The big deals were lacking - just 14 deals with a value of more than $1bn in 2012 compared with 20 in 2007.

The data show that activity inbound to Asia was quite strong with western firms keen to secure growth.

"The corporate world has to get growth, and where is the growth - it has to be Asia. Bulk chemicals and intermediates growth prospects in the west are fairly limited," said Kirk McIntosh, partner at The Valence Group.

"As you move up the value chain you cannot just manufacture products," McIntosh said. "There is a service element." Even the largest chemical companies in the world struggle with this aspect of increasingly sophisticated, or customer-focused businesses, where the service element potentially offers a competitive advantage.

So a significant driver for M&A by growing China players is broadly the acquisition of technology and market access. Western companies, for instance, have fundamental process knowhow that is attractive to producers from China and elsewhere.

By: Nigel Davis
+44 20 8652 3214

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