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Chemicals M&A activity during the first quarter saw the highest total deal value compared to other industrial products industries. This was in large part driven by the announcement of Saudi Aramco’s acquisition of a majority stake in SABIC for $69 billion. This one deal accounted for 80% of chemical deal value in Q1, by far the single largest chemicals contribution in the past three years. Among the topline findings from our Q1 2019 Global Chemicals Deals Insights report are:
There’s more to the chemicals M&A story than the Saudi Aramco deal though. Continued consolidation in the specialty chemicals space is decreasing the number of high-quality targets for acquirers. This in turn continues to drive up trading multiples. With specialty chemical trading multiples at all-time highs, we expect to see larger $1 billion plus revenue private family or trust-owned companies come to market. We’re keeping a close eye on companies focused on health and nutrition additives, plastics compounding, coatings, adhesives, specialties distribution and specialty materials.
Taking a look at the regional data, Asia and Oceania once again was the most active as both the acquirer and target region. Despite a decrease in the number of deals, Asia and Oceania still managed to contribute the highest percentage of total volume as the acquirer and target region, respectively. This marks a trend of eight consecutive quarters where the region accounted for more than half of all deals. North America followed in a distant second, accounting for about 20% of deals as both target and acquirer region, and the UK and Eurozone was the third largest region.
Strategic investors continued to be responsible for the majority of deals taking place and accounted for two-thirds of the deals in Q1. This is a trend that has continued for over three years and shows no sign of slowing down. Financial investors were responsible for 56 deals valued at $6.2 billion, on par with prior volume which hasn’t reached triple digits in over three years.
Our chemicals sector outlook for M&A activity remains consistent with previous reports. We anticipate deal activity to remain strong throughout 2019 with high deal multiples and values in specialty chemicals offsetting lower deal volumes in sub-sectors like fertilizers and agricultural chemicals, industrial gases and commodity chemicals. Diversified and commodity chemicals trading multiples are expected to be flat to declining given balanced demand and availability. We’re expecting PE firms who have stayed on the sidelines and are ripe with cash, coupled with corporate strategics, to drive deal flow in not only the specialty chemicals space, but also by way of portfolio optimization and the restructuring of large global diversified chemical companies. There are also a number of PE firms who will be looking at exit strategies for the specialty and commodity portfolio companies they’ve held for a number of years.