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Chemicals: Deals 2022 outlook

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What's driving deals in 2022

PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for 2022.

Chemicals M&A activity accelerates

Chemicals M&A volume and value rebounded strongly in the second half of 2021 with operating margins widening as  pent-up consumer demand provided a boost to the major economies. Deals value in the third quarter of 2021 alone outpaced total value of the first half of 2021 due to several megadeals (Platinum Equity-Solenis, PTTGC-Allnex, MKS-Atotech). Through the first six weeks of the fourth quarter of 2021, activity accelerated further, with Sika’s acquisition of MBCC for $6 billion and DuPont’s acquisition of Rogers for $5.2 billion. With these megadeals, we expect the fourth quarter of 2021 to be the most active quarter in the last two years in terms of both deal volume and value.

Chemicals deals outlook

Chemicals M&A activity surged in the past six months as the global economy recovers from the pandemic. The US chemical industry could experience a full recovery in 2022 if the pandemic continues to ease, vaccines become widely available globally and pent-up consumer demand provides a boost as economies reopen and restrictions lift. Chemicals companies executives are becoming more optimistic as operating margins improve from the pandemic trough, and are therefore more willing to position capital for growth. While increasingly elevated deal multiples could potentially temper buyers’ interests, the multiples have drawn out more sellers, including private equity firms looking for an earlier exit and corporates hoping to monetize non-core assets. We also expect a comeback of private-equity-sponsored chemicals deals to continue if the capital market remains upbeat and financing costs remain low. As such, we anticipate chemicals M&A activities will continue to be robust in 2022.

Key deal drivers

Optimizing portfolios and divesting to reinvest

Chemicals deals’ multiples have been trending up to a historical high level in recent months, driven by market optimism of post-pandemic recovery, abundant capital and debt financing. Chemical companies are motivated to evaluate their portfolios and make strategic moves to unlock value in a sellers’ market. Private equity firms are also eager to optimize time to exit and shorten holding periods, taking advantage of abundant liquidity and motivated buyers. With a robust pipeline of divestitures expected to hit the market in the next 12 months, chemicals deals activity is expected to continue strong in 2022.

Committing capital to growth

With the Fed's decision to hold interest rates steady, liquidity remains readily available to support deals activity.  On the corporate side, specialty chemicals companies were able to pass on feedstock cost increases thanks to strength in end-markets such as pharmaceuticals, food ingredients, construction and electronics. Improved margins and cash flow have further boosted confidence for companies to double down on high-margin businesses, often through acquisitions of small players. Sitting on record levels of dry powder, private equity firms have become creative in exploring alternative structures to fund deals, such as club deals, private investment in public equity (PIPE) in special purpose acquisition company (SPAC) mergers and partial exits with earnout arrangements. We have also seen increased numbers of private equity firms building a dedicated team investing in the chemicals sector including players from Asia and the Middle East. This expanding availability of capital for chemicals M&A could have a long-lasting, positive impact in years to come.  

Increasing resilience and security

Chemicals companies have been challenged by global supply-chain disruptions due to pandemic-related capacity shutdowns, feedstock shortages, elevated shipping costs and port congestion. These challenges forced regional players to look abroad to establish a more agile and resilient supply chain. Cross-border chemicals deal activities are expected to increase significantly, as companies find it to be the swiftest path to stabilizing their supply chains and reducing total landed costs.     

Unlocking value in a high-multiple, high-expectations environment

The increased emphasis on environmental, social and governance (ESG) and net-zero commitments has triggered strategic portfolio reviews of large chemical companies which could drive divestitures and reposition capital to cleaner and carbon-neutral investments. On the other hand, some special-purpose investment vehicles are mulling investing in “carbon-rich” chemicals businesses which could become divestiture candidates. While the valuation expectation gap remains a challenge for these deals to be completed in the near term, it is expected dealmakers will be able to find creative ways of bridging this gap and bring together a willing coalition of players to extract value in this multi-decade trend.

“Despite elevated deal multiples and the uneven recovery of global economies from the pandemic, all indicators point to the chemicals M&A boom showing no sign of abating in the first half of 2022.”

— Craig Kocak, US Chemicals Deals Leader

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Craig Kocak

Chemicals Deals Leader, PwC US

Seamus Jiang

Deals Managing Director
China Inbound Deals Leader, PwC US

Peggy Hardek

Partner, PwC US

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