Opinion

Last updated: 8th Sep 2011

Practically no large company in the chemical industry has missed the chance to use the economic recovery for acquisitions. After all, during the global crisis the market players were more or less focused on their internal issues: cost cutting programs, portfolio and capacity optimization, internal restructuring, repositioning etc.. These measures combined with a solid economic recovery brought record-breaking revenues and profits in 2010. Corporate balance sheets were strong, cash positions high, economic prospects thoroughly positive – the right time to look for suitable targets to boost further growth.

Mega M&A deals did not take long to materialise. The takeover of Cognis GmbH by BASF SE in June 2010 kicked off a period of acquisitions in the European chemical industry. Since then a number of prominent deals have followed: DSM Elastomers BV has been acquired by Lanxess AG; Danisco A/S has become a part of Du Pont; Clariant AG acquired Sued-Chemie AG; and Rhodia SA has been taken over by Solvay SA.

Corporates were clearly the most active acquirers. Industrial players were looking for dominant market or segment leaders to gain / protect pricing power, portfolio diversification to reduce cyclicality, high profitable niche products to improve margins and technological innovations to secure further development.

Also private equity investors returned to the market and continued investing into the chemical industry, however, to a lesser extent given financial issues, e.g. Bridgepoint Capital took over the German speciality chemicals manufacturer CABB GmbH and Triton Partners acquired the carbon black business from Evonik Industries.

In summary, the second half of 2010 and the first half of 2011, have seen M&A activity in the European chemical industry fully recover and reach the pre-recession levels in terms of company valuation, cumulated deal value and volume.

The current market volatility and growing general uncertainty with regard to the debt crisis in the USA and Europe, as well as fear of the next economic recession, will surely have a (short term) negative impact on global M&A activity. However, no dramatic drop is expected. Among industry experts a generally positive outlook prevails. The industry shows high profits and sound balance sheets, the major growth markets of Asia and South America will be affected by a possible economic recession to a smaller extent and will remain the driving force of the growing demand. Developed markets give less opportunity to grow. All these indicate, that the M&A activity in the chemical sector will remain dynamic.

Globalization of activities and location of production capacities in the emerging markets along with acquisition and development of new cutting-edge technologies (for instance industrial biotechnology) will be in the focus of potential investors. Another field of high interest is expected in the segment of high margin speciality chemicals and niche products. Last but not least, the chemical corporates will continue looking for activities which will reduce revenue cyclicality. Among others, segments linked to personal care business as well as animal and human nutrition offer such an opportunity. In these segments there should be a flurry of deals and it is also likely the next mega- deals will be observed in this space.

Stefan Constantin
Managing Partner
C.H.Reynolds