egghead.jpg

The smarty pants at BASF seem to have got it right again with their $6.1bn bid for Ciba Specialty Chemicals and rumours that they might also be after Clariant.

Talking about counter-cyclical investment is one thing, but doing it is quite another. You need to have built up the cash reserves to execute the obvious – and, of course, need the right product portfolio already in place to earn the money in the first instance.

BASF has made and continues to make a packet from its oil and gas business. It’s oft-repeated focus on integration and on getting out of the more cyclical commodities is also paying dividends. It was walking the talk about reducing exposure to such commodities long before a certain US-headquartered company jumped on the bandwagon.

Talking about stating the obvious of buying low and selling high, McKinsey does this – but with some useful numbers – in its report, M&A Strategies In A Down Market. Again this is from the consultancy’s excellent monthly newsletter, which is free once you have signed up.

The report’s authors have also written a book, The Granularity of Growth. It includes a database of 200 global companies that decomposes the most important sources of growth (market momentum, mergers and share gains). Sectors that suffered big upturns or downturns were then analysed in order to rank the importance of these growth sources – with the study also extending to individual companies strategies.

“Two sets of results stuck out,” write the authors.

“First, (I wish consultants would learn to write shorter sentences – my comments in italics) of the potential strategic moves companies can take to grow in a downturn – divest acquire, invest to gain a share – an effective acquisition strategy (defined as growth through M&A at a rate higher than 75 percent of a company’s pears) created significant value for shareholders (you can pause for breath now).

“During an upturn, on the other hand (surprise, surpirse), divestments created slightly more value that acquisitions did (this presupposes you can find some mug to buy your business at some ridiculously inflated price on the belief that the economic boom will last forever).

“Second, companies often behave in counterproductive ways. Fewer than half as many companies in the segments we studied made acquisitions in downturns rather than in periods of economic growth. Significantly more divested businesses in those market segments in downturns than in upturns.”

The global credit crisis and volatility in stock markets “could temporarily disrupt M&A activity and add risk to existing deals,” said Scott Anderson, senior economist at Wells Fargo – the US financial services company. He was speaking at the ICIS Chemical Purchasing Summit, which is taking place in Boston, Massachussets.

He added, however, that conditions were right for further consolidation in the chemicals industry as manufacturing customers become larger.

The Middle East has the cash, of course – as do the Chinese if they can be bothered. Sovereign wealth funds could be the vehicles, as well as the petrochemical companies themselves, for a wholesale shake-up of industry ownership.

And as I’ve already said, those clever people at BASF look likely to be involved. Being right and having senior executives with brains the size of a small planets is very annoying for those of less able (especially if they are also nice to children and animals, actively care about the environment, give a large proportion of their incomes to charity and are good at football when World Cups come round).

PREVIOUS POST

History will repeat itself

17/09/2008

Peak Oil, carbon credits, carbon capture and storage, collaterised green obligat...

Learn more
NEXT POST

Changing nature of demand

19/09/2008

green homes, the Economist, Peak Oil, speculators, changing demand growth

Learn more
More posts
Omicron, petchems and the developing world: we might get lucky this time, but maybe not next time
02/12/2021

By John Richardson UNTIL ALL of us are adequately vaccinated none of us are sufficiently protected i...

Read
Benzene, the need for a new global Industrial Revolution and the big challenges that lie ahead
30/11/2021

By John Richardson THE CHART BELOW shows that 60% of global benzene production in 2021-2040 is forec...

Read
Global polypropylene could also move from inflation to deflation in Q1 next year
23/11/2021

By John Richardson WE ALL NEED TO ASK ourselves whether the global patterns in polyethylene (PE) and...

Read
Global polyethylene could move from inflation to deflation by as early as Q1 2022
22/11/2021

By John Richardson THE BALTIC DRY INDEX, one of the excellent barometers of overall economic activit...

Read
As China coal shortages end, polyolefins margins reach historic lows on oversupply
17/11/2021

By John Richardson AGAIN, DON’T say I didn’t tell you. In my 11 October blog post, having talked...

Read
Dip in Chinese PP exports only temporary with Q1 2022 resurgence looking likely
15/11/2021

By John Richardson TRADE DATA when combined with price assessments, supply and demand estimates and ...

Read
Global polyethylene supply could lengthen, becoming a buyers’ market, sooner than many people think
12/11/2021

By John Richardson RARELY, IF EVER, have events felt so bafflingly complex in the global polyethylen...

Read
China could either see net imports of 63m tonnes in 2021-2031 or net exports of 18m tonnes!
09/11/2021

By John Richardson CONFUSED BY the above chart? Once again I certainly hope so, provided confusion i...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more