Chemicals: US Deals 2023 midyear outlook

Chemical industry M&A initial rebound likely to continue

Chemicals industry deal value and volume in the first half of 2023 steadily recovered from the third quarter 2022 low, despite high interest rates and looming worries of the possibility of a global recession. Chemicals dealmaking activity is driven by various factors, including attractive valuation, capital availability and the pursuit of strategic acquisitions to enhance market presence and competitiveness. Looking ahead, we expect the chemicals M&A market to maintain its momentum in the second half of 2023, driven by continued demand for transformative deals, cross-border collaborations and the pursuit of sustainable solutions to address environmental challenges.

Anticipating an easing of tight monetary policy globally, chemicals M&A experienced a modest recovery in recent months. As central banks signal a shift towards a more accommodative stance, global chemicals giants and mega private equity firms have come back to the table to take advantage of attractive valuation and cash on hand. In particular, deal activity in North America experienced some recovery with the announcements of several megadeals, as the US economy remains resilient. Deal activity in Europe remained muted amid margin pressure from significant increases in feedstocks as a result of the ongoing war in the Ukraine. While a recovery of China's economy has not materialized, the ongoing restructuring of the global chemical supply chain continues to drive M&A activities in Asia. Additionally, the attractive valuation of publicly traded chemical companies led to several multi-billion dollar tender offers initiated by investor consortiums backed by mega private equity firms and Middle Eastern petrochemical giants. 

A loosening of monetary policy — if it materializes — is expected to stimulate economic growth and bolster market confidence, creating a conducive environment for chemicals M&A activity in the near- to medium-term. Companies may seize this opportunity to pursue transformative deals, consolidate market positions and capitalize on synergies and economies of scale. In the meantime, divestiture of non-core assets from portfolio optimization, surveying of supply chain and increasing pressure on companies to decarbonize and fulfill sustainability obligations remain fundamental themes expecting to drive M&A in the short-term. 

Explore national deals trends

Transact to Transform

Companies face markets being reshaped by technology and disrupted by geopolitical unrest, a global pandemic and economic shocks. As a result, CEOs are turning to transformative acquisitions to reposition and reinvent their businesses for long-term success. Companies are also beginning to crack the code on how to make big, transformative deals successful: leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report. 

Key deal drivers

Necessity for business reinvention

In the current environment of higher cost of capital, persistent inflation and geopolitical uncertainties, chemicals companies are looking to gain a strategic advantage by reassessing portfolios against core strategies to generate value and adapt to the “new normal.” The need to meet environmental, social and governance (ESG) requirements, the global shift to decarbonization and the ongoing energy crisis in Europe have exerted pressure on chemicals companies to accelerate this process. PwC’s recent divestiture study found that companies can reinvent themselves and increase their chances at creating value through objective divestiture decisions. The speed with which chemicals companies make M&A decisions and strategically manage their portfolios helps determine the degree of their advantage in this changing business environment. Many delayed divestments and carve-outs from 2022 resumed in recent months and will likely fuel a rebound in deal activities in the coming quarters.

Resilience and innovation for growth and sustainability

Global chemical supply-and-demand dynamics remain off-balance as a result of the ongoing Russia-Ukraine war and a fracturing world amid heightened geopolitical tension. Trade disputes, sanctions and political rivalries may hamper cross-border transactions and create obstacles related to regulatory approvals. On the other hand, they can also create opportunities for companies who strategically engage in M&A to diversify their geographic footprint, mitigate risks and navigate changing trade dynamics.

Companies may also look to build redundant manufacturing capabilities in multiple regions or countries to cope with a new business environment with a fragmented global supply chain. For the chemicals industry, M&A is often the preferred approach to achieve this strategic goal as greenfield investment takes a much longer time period to carry out. This was seen in several high-profile deals in Asia and South America by Middle Eastern investors and private equity firms in recent months.   

Capital allocation

High interest rates and inflation are forcing companies to find less costly financing alternatives. A quiet IPO market and depressed valuation of publicly traded companies are also making it more difficult for private equity portfolio chemical companies to find exits. This creates opportunities for companies with strong balance sheets and investment funds with dry powder to create value through executing deals quickly, despite a very challenging credit market.

For global chemicals giants with multiple divisions, the right combination of acquisitions and divestitures to reinvest can drive return on capital, even in an environment with higher capital cost and inflation. Chemicals companies have begun to refocus efforts on working capital management, such as reducing inventory and collecting payments more swiftly to provide cash to fund potential investments. Chemicals companies may also use divestitures to provide a source of cash, to refocus on the core business units or fund strategic acquisitions as the cost of capital continues to remain relatively high.

“Chemical M&A is at a pivot point to rebound from a multi-year low as the global economy proves to be resilient.”

— Craig Kocak, US Chemicals Deals Leader
Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.