There was a 20% increase in the completed chemical deals in HY1 2015 (versus HY1 2014). The value of the top 10 announced deal was four times higher than HY1 2014. KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain ‘Moderate’ in chemicals.
M&A activity in HY1 2015 aggregated to a value of $26 billion with Q2 2015 top 10 completed deals amounting to a total of $7.9 billion. The sector continues to consolidate. US dominates the global top 10 completed deals although several deals involving European and Asian companies as well. With a value of $58.5 billion, deal announcements almost quadrupled compared to HY1 2014. One deal announcement could result in the largest cross-border Chinese deal since 2012.
Consolidation: The consolidation trend continued in Q2 2015. Companies invested in businesses with high growth potential and spun off the ones with less synergies to sharpen their portfolios.
Automotive - forward and backward integration: Specialty chemicals support the growing automotive industry. A range of chemical products offer several benefits including reduced vehicle weight for better mileage, enhanced performance and improved manufacturing quality. Companies from the two complementary sectors are integrating vertically.
PE involvement in chemical M&A: PE firms continue to be active in chemical M&A.
Share prices of chemical firms listed in the Bloomberg Europe 500 and Asia Pacific indices still outperform the market. S&P 500 Chemical Index has broadly followed the MSCI world index since the beginning of 2015.
ACQUIRING ALONG THE VALUE CHAIN
Many chemical deals this year were focused on consolidation of standard products in order to further cost optimization and rationalization efforts to drive scale. At the other end of the spectrum, acquirers are also interested in companies that offer differentiation and specialized application know-how.
Henan Billions Chemicals Co., Ltd.’s $1.5 billion acquisition of LOMON Titanium Industries Co., Ltd., the top Asian manufacturer of titanium dioxide, echoes the industry’s trend. With the ongoing consolidation and integration in titanium dioxide market, smaller players will likely be squeezed out due to strict environmental requirements and the inability to compete with the scale offered by the larger players.