Transactions in chemicals, on the other hand, are moving up the value chain as companies seek to strengthen their positions in the high - margin specialties segment. KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain ‘Moderate’ in chemicals.
Chemical M&A deal volume totaled $ 74 billion in 2015, representing the highest level since 2011. The majority of transactions was strategically motivated. Financial investors showed interest in the high-margin polymer segment. US, followed by China and Japan dominate the chemical M&A landscape.
In Q3 2015, Merck KGaA acquired Sigma-Aldrich Co. for $ 17 billion, pursuing its focus on the $ 130 billion life science industry, with its key areas being healthcare and performance materials.
In Q1 2015, Albemarle Corp. acquired Rockwood Holdings Inc., the world’s largest lithium processer, for $ 6.2 billion. Albemarle combines complementary high-margin specialty portfolios to penetrate lithium-based energy storage products, thus strengthening its positioning in the highly concentrated lithium industry, growing at 7% to 10% annually.
In Q4 2015, Air Liquide SA announced the $ 13.4 billion acquisition of Airgas Inc., thus becoming the leader in the US industrial gas market ahead of its German competitor, Linde AG.
Through the $ 7 billion acquisition of The Dow Chemical Co.‘s chlor-alkali division in Q3 2015, Olin Corp. triples capacity in its core business and becomes the world’s second largest chlorine producer.
Dow plans to take full ownership of a 50-50 joint venture with Corning Inc. for $ 4.8 billion, broadening its silicone product offerings. Thus, Dow expects an additional increase in adjusted earnings of more than $ 1 billion.
Dow announces largest-ever chemical transaction
In Q4 2015, Dow announced a $ 62.1 billion merger with E. I. du Pont de Nemours and Co. targeting $ 3 billion cost synergies and a combined market capitalization of $ 130 billion. They will first merge, then split into three independent, highly-focused companies in material science, specialty products and agriculture.
The seeds of consolidation in agrochemicals were planted when Monsanto Co. made several offers to acquire Swiss crop chemicals specialist, Syngenta AG, with the last offer valued at $ 46 billion. A subsequent offer from the state owned Chinese chemical giant, ChemChina, for $ 42 billion was also rejected.
Covestro AG, formerly known as Bayer MaterialScience, debuted on the stock market in October 2015. Unleashing its potential as a pure-play polymer developer and producer, Covestro is well-placed to accelerate its growth in key markets such as automotive, construction and electricals/ electronics. Proceeds from the share sale of around $ 1.5 billion are further used to repay the intercompany debt to Bayer.
In 2015, financial investors were active in the high-margin polymers business. Apollo Funds first acquired OM Group Inc. for $ 1 billion in Q4 2015 and then sold OM’s electronic chemicals and photomasks businesses to Platform Specialty Products Corp. for $ 0.4 billion.
Deal activity in the chemical sector in 2016 is expected to remain buoyant due to the following factors:
Gaining access to the Chinese capital market via “back-door listings” enables chemical companies to implement their corporate strategy which otherwise would be out of reach. One such back door listing was the $ 1.9 billion domestic acquisition of Jiutai Energy Inner Mongolia Co., Ltd. (China) announced by Weihai Huadong Automation Co.,Ltd. The announced $ 1.5 billion acquisition of Wison (Nanjing) Clean Energy Co., Ltd. (China) by the financial investor Chengzhi Shareholding Co., Ltd. (China) underlines Wison’s ambitions to become a leading supplier of industrial gas and downstream olefin products derived from coal.
Asian players are focused on advanced chemicals to meet growing middle class demand. Dalian Rubber & Plastics Machinery Co., Ltd. acquired Jiangsu Hengli Chemical Fibre Co., Ltd. for $ 2.4 billion. The South Korean Lotte Group acquired Samsung’s fine chemicals division as well as their battery and electronics chemical segment for $ 2.0 billion.
The S&P 500 Chemicals Index lost 6.3% in 2015 and slightly underperformed the market (-2.7%). However, the Bloomberg Europe 500 Chemicals Index (+6.3%) as well as the Bloomberg Asia Pacific Chemicals Index (+13.7%) beat the market.