Chemicals M&A is off to a solid start in 2018.
During the first quarter of this year, a total of $24 billion in deal value was announced, 17% higher than the first quarter of 2017 and 48% higher than last year’s quarterly average of $16 billion. There were 203 deals during the first quarter with average deal size jumping 65% to $227 million. Geopolitical tensions and market competition are driving transaction value and we believe this will continue to impact deal activity in the chemicals sector.
We have also seen a shift in investor type within the chemicals sector during the first quarter. While strategic investors continue to account for the larger share of deal activity, we have seen an increase of activity from financial investors by taking 60% of total value this quarter. We believe that the number of divestitures resulting from megadeals (transactions worth more than $5 billion) is driving this upward trend in financial interest in the chemicals sector. We also expect private equity buyers to continue deploying their record-high dry powder throughout the year, especially in the Specialty Chemicals subsector.
The Specialty Chemicals category accounted for 92% of deal value and 52% of deal volume during the first quarter of 2018. The announcement of AkzoNobel’s sale of its Specialty Chemicals segment shows that the category remains a key lever in maximizing shareholder return.
Asia & Oceania continue to be most active in deal-making in the chemicals sector, but North America contributed to an increasing share of acquirer value and volume in the first quarter by contributing to 66% of deal value and 24% of volume. The latest US tax reform will continue to give a boost in M&A activity for US-based chemical companies as they become more competitive with overseas peers from the help of reduction in corporate income tax rate and their ability to access existing and future overseas cash.
With industry-transforming megadeals overcoming big regulatory hurdles, private equity buyers deploying dry powder and US tax reform benefitting global chemical giants, we expect chemicals M&A activities to continue rebounding and accelerating. Longer term, rising trade barriers and tensions may have a profound impact on global chemical supply chains and may create more cross-border M&A activity as chemical companies substitute capital for trade in goods.
View the full Q1 2018 Chemicals deals report here.