Deal Capsule - Transactions in Chemicals January 2017

Deal Capsule - Transactions in Chemicals Jan 2017

In chemicals, several mega deals are close to completion. Activity was spread across the value chain with a focus on agrochemicals. PE activity was subdued due to high valuations.

Head of Chemicals and Pharmaceuticals, KPMG in Germany

KPMG AG Wirtschaftsprüfungsgesellschaft

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KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain moderately strong in chemicals.

Deal focus areas

Chemicals M&A witnessed a solid deal flow in 2016. The number of completed deals decreased slightly by 4% year-on-year. However, the top 10 announcements surpassed $180 billion. Deals spread across the entire value-chain with a focus on agrochemicals. Strategic investments constituted the majority of deals. PE activity was subdued due to high valuations. US and China were the most active countries.

The three emerging landmark deals in agrochemicals dominated the sector. The shareholders of Monsanto Co. backed the $66 billion acquisition by Bayer AG. The deal thus progresses towards regulatory approvals. Meanwhile, Monsanto acquired VitalFields, an Estonian farm management software firm. Both Monsanto as well as Bayer are investing in digital service offerings for farmers.

The merger of Dow Chemical Co. and E. I. du Pont de Nemours and Co. remains under review by global antitrust authorities. The companies, with a combined market capitalization of around $130 billion, have leading positions in agrochemicals and are major suppliers of specialty polyolefins used in packaging and adhesives.

The $43 billion acquisition of Syngenta AG by China National Chemical Corp. took a leap forward as it won US CFIUS approval. The last major hurdle for the deal is the European Commission.

German and Asian activity surging

Germany’s leading chemical companies were very active in 2016. In total, they plan to invest around $76 billion. BASF SE, Lanxess AG and Evonik Industries AG all snapped up high margin specialty businesses.

Linde AG announced its intention to merge with US rival Praxair Inc. The deal would create the world’s largest industrial gases supplier with pro forma revenues of $30 billion. Both companies possess complementary strengths and regional footprints. The deal is expected to create annual synergies of $1 billion.

2016 experienced strong deal momentum in Asia. Chinese firms accounted for 21% of total acquisitions, up from 16% last year. Chinese acquirers look for outbound targets in response to domestic market consolidation and cooling economic growth in China.

Financial investors

Activity by financial investors was comparably low in 2016. The number of completed PE acquisitions declined by 17% year-on-year. High valuations made it difficult for financial investors to find attractive targets. However, a series of PE investors exited the sector with four deals worth more than
$1 billion each.

Activity finally gained pace in Q4 2016 as Carlyle Group LP announced the acquisition of Atotech, the specialty chemicals unit of Total SA, for $3.2 billion. The French oil giant was seeking buyers for Atotech, as it plans to divest non-core assets in response to declining oil prices.

It is Carlyle’s second largest acquisition of a chemical company in recent years after buying Axalta Coating Systems Ltd. from DuPont for $4.9 billion in 2013.

Blackstone Group L.P. announced its acquisition of the German-based cellulose acetate tow business from Solvay S.A. It is Solvay’s fourth divesture in 2016 and part of its portfolio reshaping strategy.

Capital index

Following a decline at the beginning of the year, chemical indices rose steadily throughout 2016. Despite the EU referendum in the UK, Bloomberg Europe 500 (+15.8%) outperformed other regional indices.

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