Chemicals

Chemicals M&A Outlook 2010

Expect recovery in mergers & acquisitions (M&A) activity in the chemical industry. Although activity in the chemicals industry plummeted in the first quarter of 2009, it has been growing steadily ever since. The current economic crisis has put many companies on the table that would not have been considered a possibility for acquisition previously, leaving the chemicals industry in a state of flux. Western demand has declined throughout the broad economic recession, straining suppliers in the West. A lack of demand has forced chemical companies to operate below efficient capacity or to close plants altogether.

In contrast, the chemicals industry is seeing new suppliers and established suppliers both develop in the Middle East and Asia. Many new factories and factory expansions are on the horizon throughout Saudi Arabia, Abu Dhabi, Qatar and Kuwait. In Asia, the Chinese chemicals industry has remained stable, despite economies woes, due in no small part to massive Chinese government stimulus initiatives similar to the ones that have supported the banking and automotive industries. As a result:

Chinese companies can be sure they have access to chemicals required for their products.

Industrial development throughout China can continue unaffected.

Key products can receive adequate promotion and access to funding.

Due in part to initiatives of the Chinese government, such as the one described above, China should become the world’s largest chemical supplier by 2015, beating out the current leader – the United States. Chinese companies’ aggressive acquisitions of chemical plants around the world are anticipated.

Over the next 18-24 months, mergers & acquisitions activity is bound to increase, particularly in the low midmarket as smaller companies can’t keep their heads above water in the face of a poor economy, lack of demand and reduced access to financing. Larger companies will purchase these smaller companies to gain advantage in customer base, geographic region, contracts, patents and technology. This is of particular importance as companies develop various chemical products with climate change in mind, such as lightweight building insulation, lighting systems, coatings, plastics, and low-temperature detergents. In addition, some chemical companies are involved, or would like to be involved, with green chemicals and increasingly strive to increase their respective portfolios of greener chemicals, sources of renewable supplies, etc. As smaller up-and-coming companies develop technologies required for renewable energy, green building, etc., larger companies will seek to acquire them.