Chemical industry M&A tops $70 billion amid strong demand

17 June 2019 3 min. read

The chemicals industry is seeing strong growth on the back of growing global demand. This demand saw merger & acquisition activity in the industry hit $72.4 billion last year.

The chemical industry has shown strong growth over the past decade as demand from China boomed. While organic growth has remained a key part of the industry’s growth plan, growth through M&A too has featured prominently. New analysis from Deloitte explores the M&A landscape in the industry across the globe.

Overall the industry has been relatively stable in terms of the number of transactions over the past decade, hovering between 500 and 650. The most recent year saw deal value increase slightly to $72.4 billion – following a drop of more than $150 billion between 2016 and 2017. 2018 was a relatively slow year to begin, before each successive quarter saw increased deal activity.

The number of mega-deals seen in 2015-2016 hasn’t been repeated. However, those deals continue to affect the market with divestitures resulting from those deals continuing.

Global chemical M&A by acquisition activity 2010 to 2018

The research notes that 2019 is likely to shape up in a similar fashion to 2018. Large scale trends are set to continue to affect the market, even in the face of some uncertainties – such as the trade war between the US and China. Profitability in the industry remains relatively strong, providing capital with which to make acquisitions – with reserves continuing to be high. Meanwhile, financial players continue to have access to abundant capital, allowing them to make moves in the market.

In terms of target sectors, commodity chemicals remain the main target for acquisitions, at 350 in 2018. A small decrease was noted however, on the year previous. One reason was a decrease in activity in the segment from Chinese buyers, reflecting a slowing Chinese economy. However, the report also notes that interest in basic chemicals could decline on the back of a global slowdown in 2019.

Specialty chemicals too saw a small decline, to around 150 deals. Value hit a record last seen in 2014 due to a number of mega-deals. The industry faced higher feedstock prices, which fed into wider market uncertainties. Fertilizers and agricultural chemicals saw a slight increase to around 75 deals, while industrial gasses saw decline, and diversified chemicals saw a slight increase

Global chemical M&A activity by target market 2010 to 2018

In terms of activity by region, the US has continued a trend of peaks and troughs, with total deal activity falling to around 175 in volume. The report adds that key trends around interest rates, stock market volatility and trade tensions saw slight reservation. Going into 2019, activity is set to be relatively slow in the region.

China saw increased activity over the past five years, with 2018 continuing the trend. Domestic deals continue to drive activity, reflecting the country’s internal focus for the industry – with both EU and US regulators scrutinising cross-border deals for potential risks to intellectual property. Outbound deals for the coming years are more likely to occur in Asia.

The UK, meanwhile, continued to see foreign buyer interest, in part due to the low value of the sterling. Continental Europe contributed around a third of deal activity, as they snapped up deals, while the US, after strong investment activity in 2017, pulled back in 2018. The UK continues to have favourable fundamentals, and with Brexit less likely to result in a hard break with the EU, interest continues.