INSIGHT: Chemicals M&A looking good with focus on Asia

16 December 2013 12:10  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--This hasn’t been a great year for mergers and acquisitions (M&A) in the chemical industry. Economic and financial market uncertainty has weighed against too much M&A activity and there has clearly been an absence of big, multi-billion dollar deals.

Yet looked at over a longer-term perspective, and taking into account the many small transactions that are concluded in the sector, some with no value publicly disclosed, then chemical industry M&A is close to an all-time high.

“Since 2004, the number of chemical transactions has more than doubled and continues to remain at a high level,” specialist chemicals M&A advisers, the Valence Group, said in September in a paper prepared for the Gulf Petrochemicals & Chemicals Association (GPCA). “Even during the 2009 downturn, M&A volumes were above historical levels,” Valence noted.

For the first time, the chemical industry is growing simultaneously in North America, Europe, the Middle East and Africa, Asia and Latin America. The sector’s very diversity lends itself to greater activity as does the shift in emphasis from North America and Europe to faster growing parts of the world.

In 2005 only about 15% of all chemical sector M&A was done outside the US and Europe. Five years later, this had more than doubled to 35% according to Valence data.

If the consensus view is that chemicals demand is increasing, albeit slowly in European and North America, and if Asian and Middle Eastern players want to pursue opportunities in the increasingly more competitive US chemical industry, then activity may well be stronger in 2014.

There are also likely to be opportunities for some to buy assets in Europe, either to gain European market share or expertise, or to help consolidate the industry.

As Valence points out, there has been a significant increase in outbound activity from Asia and the Middle East.

As some of the traditional chemical companies have sought to add value by focusing more on specialities and on businesses on the cusp of the sector, so there has been a push to acquire in segments such as food ingredients, catalysts, advanced materials and more technically or service driven areas , as Valence says.

These trends are likely to continue.

Three of the five biggest deals announced in 2013 thus far have been in specialty chemicals, law firm Squire Sanders, said in a report published last week.Chemicals M&A activity 

Also, the data show that Asia has become the largest volume market for chemicals M&A.

North America led the way in terms of both the number of chemicals M&A deals and in terms of value from 2008 to 2011.

But Squire Sanders says that Asia-Pacific has overtaken North America between 2012 to year to date 2013, with a 28.8% share of total volume compared with North America’s 23.7%.

“Asia-Pacific is becoming an increasingly key market for buyers, especially for buyers from developed markets,” notes Darren Warburton, partner at Squire Sanders. China has led the way with 47 deals in already in 2013 compared with 37 deals in 2008.

The Squire Sanders chemicals M&A data are shown on the chart.

“China is experiencing consolidation throughout the market. In particular, Chinese buyers are keen to buy smaller companies that are specialised in a specific area of cutting edge technology,” one of the firm’s partners, Mao Tong, adds.

That is not always the case, of course, and some of China’s big firms are looking to grow market share or to expand.

One example is the $629m acquisition of Henan Zhongyuan Chemical, an acetic acid and chloracetic acid maker, by the listed company, Inner Mongolia Yuan Xing Energy.

Private equity has taken a back seat in terms of acquisition in 2013 with these type of buyouts down 26% in volume to 32 deals to the end of the third quarter of 2013 and 41% down in value to $5.2bn compared with 2012, Squire Sanders says.

Private equity funds have, however, in 2013 been able to announce the divestment of some long-held assets.

The agreed $2.4bn sale of Europe-headquartered oxo alcohols producer Oxea, by Advent International to Oman Oil, has been the largest announced deal in the chemicals sector so far this.

The other top five deals are China’s Chengdong Investment’s $2.0bn bid for a 12.5% stake in Russia’s Uralkali; the $1.99bn bid by Cinven for Rockwood’s Ceramtex GmbH; Platform Acquisitions’ $1.8bn bid for MacDermid Specialties of the US (owned by Court Square Capital Partners, Weston Presidio Capital and MacDermid Group); and Georgia Pacific’s $1.47bn bid for Buckeye Technologies.

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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