Deal Capsule: Transactions in Chemicals - Q3 - 2015

Deal Capsule: Transactions in Chemicals - Q3 - 2015

While the specialty chemicals segment remained attractive, consolidation in the agrochemical sector was another key deal driver, accounting for three of the top 10 announced deals during Q1-Q3 2015.

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Deal Focus Areas

In Q3 2015, M&A activity remained at the same level compared to Q2. The US continues to dominate the global top 10 completed deals, followed by China. Consolidation in a weak market environment is the key driver of deal activity with agrochemicals an area of focus this quarter. Hostile attempts fail to succeed.

Growth focus drives specialty chemicals deals: The high value specialty segment continues to attract investors for the differentiated and specialized know-how. A $5.5 billion deal between Belgium-based Solvay SA and US-based Cytec Industries Inc. strengthens Solvay’s presence in the high growth automotive and aerospace composite materials segment. The announced transaction is part of Solvay’s portfolio transformation initiative and is preceded by three other acquisitions since 2011.

Consolidation in agrochemicals increases: Q3 2015 M&A activity in the agrochemicals sub-sector was strong, led by the nitrogen fertilizer market, the largest nutrient segment. Market consolidation is being driven by the need to increase market share amidst falling nitrogen prices and a fragmented nitrogen fertilizer market (with the largest 20 firms accounting for about one-third of the supply).

Unsuccessful hostile attempts: North American players seeking to strengthen their market position are aggressively pursuing European assets. To integrate its seeds business with crop chemicals, Monsanto Co. repeatedly made offers to acquire Swiss crops chemicals specialist, Syngenta AG, with the last offer valued at $46 billion. Following continual rejections by Syngenta, Monsanto withdrew its bid in Q3 2015. Syngenta now plans to sell its vegetable seeds business. It also plans to buy back shares worth $2 billion in an effort to lift its share price which declined after Monsanto’s bid withdrawal.

Capital Index

The S&P 500 Chemicals Index underperformed the market in Q3 2015. The Bloomberg Europe 500 Chemicals Index and the Bloomberg Asia Pacific Chemicals Index also declined in Q3 2015.

China

M&A activity was locally focused with no active foreign involvement. The largest completed deal in China was Sinochem Corporation acquiring an additional 15% stake in Qinghai Salt Lake Industry Co., Ltd.. The transaction makes Sinochem the second-largest shareholder, maximizing the value and use of the distribution network for Sinochem.

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