Mergers and acquisitions in chemical industry expected to increase globally in 2014, executive survey finds, driven by high liquidity of chemicals companies, resurgence of US chemicals industry

NEW YORK and MUNICH , March 3, 2014 (press release) – Large Strategic Chemical Companies Are Sellers Rather Than Buyers; Asian Chemical Companies Will Likely Target Purchases of North America Commodity Assets in 2014

Despite lingering uncertainty about Europe's recovery and global GDP growth, more than 50 percent of executives surveyed at leading chemicals industry players and investment banks expect M&A activity to increase globally in 2014. The survey, conducted as part of A.T. Kearney's second annual "Chemicals Executive M&A Report," shows growth in chemicals M&A activity will be driven by the high liquidity of chemicals companies, resurgence of the U.S. chemicals industry because of low-cost feedstock, regional expansion plans of Asian companies pursuing growth through acquisitions in Western economies, and Western companies seeking access to developing markets. The Report includes an analysis of global chemicals sector M&A deals in 2013 and a forward view of expected 2014 sector M&A activity.

"Major North American chemical companies continue to focus on portfolio restructuring, driven both internally and in response to activist investors. Many major chemical companies are more likely to be sellers than buyers in 2014," said Andy Walberer, A.T. Kearney partner and co-author of the study.

2013 M&A Analysis

The analysis shows that 2013 M&A deal activity recovered slightly compared to low levels in 2012. Deal activity was driven by strategic investors' strong balance sheets, significant funds available to private equity, and the low cost of debt.

The value of deals in 2013 increased sharply by 47 percent, mainly due to a rise in large transactions with private equity participation. Private equity company share of chemicals transactions stayed at almost 20 percent from a volume standpoint, but value rose from 22 percent to 32 percent in 2013.

Large chemicals players continue to divest non-core or low-performing (commodity) businesses to focus on higher-margin, less-cyclical specialty chemicals businesses with attractive growth opportunities. Kish Khemani, A.T. Kearney partner and chemical sector expert, noted, "This trend reflects the increasing focus of Western and Asian companies on specialty chemicals. They are on the one hand attracted by higher margins and lower cyclicality and on the other want to create scale in the different specialty segments. Competition is rising for buying specialty chemicals assets, which translates into higher valuations."

Asian, specifically Chinese, acquirers are becoming more active, both in their domestic markets, driven by further consolidation of the chemicals industry, and outbound, seeking access to specialty chemicals know-how as well as increasing their global dominance in certain commodity chemicals by buying foreign targets at attractive valuations.

2014 M&A Outlook

Survey results suggest that M&A activity in Asia, particularly in China, will increase as buyer interest in China remains high and the number of businesses available for acquisition has gone up.

M&A activity is expected to also rise in North America, driven by the objective to gain access to low-cost feedstock and by portfolio realignments of large chemicals players that will bring sizable assets to the market. Likely outcomes include spinoffs and purchase interest from non-U.S. buyers, especially those in Asia. Chemical companies will continue to form alliances to pursue bigger acquisition bets and diversify their risk from individual deals.

The historic 20 percent of deal share that private equity has in the global chemicals sector will remain unchanged in the near future as private equity firms will have modest interest in the current large commodity-focused assets available in the market.

To receive a copy of the full report please contact Meir Kahtan at mkahtan@rcn.com or call +1.212.575.8188.

About the Survey

The survey was conducted among executives from leading chemical industry players and investment banks between December 2013 and January 2014. Survey respondents were typically the head of the M&A department of chemical companies or investment bank executives focused on the chemicals sector. Respondents provided their expectations on future M&A market developments on a Likert-type scale.

A.T. Kearney

A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world's leading organizations across all major industries and service sectors. A.T. Kearney has 58 offices located in major business centers across 40 countries.

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