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Chemicals: Deals 2022 midyear outlook

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Chemicals M&A resilient despite near-term headwinds 

Chemicals deal activity in the first half of 2022 retreated from the fourth quarter of 2021 as chemicals companies and private equity firms globally paused to evaluate the impact of the Ukraine war, rising interest rates, a possible US recession and, most recently, China’s zero-COVID policies. While deal volume declined in the first half of 2022, deal value is outpacing the average over the last decade. The first quarter of 2022 saw the largest megadeal in the last two years: Celanese’s announcement of its acquisition of DuPont’s Mobility & Materials business for $11 billion in cash.   

Chemicals deals outlook

Despite the uncertainties, chemicals M&A activity continues to be robust, and 2022 may still turn out to be an above-average year relative to activity over the last decade. Major drivers of deal economics remain intact, including strong corporate balance sheets, record-level private equity dry powder and the increasing need for speed in business transformation and portfolio realignment.

Elevated valuation multiples in recent periods and the need to reconstruct portfolios to meet environmental, social and governance (ESG) requirements continue to motivate diversified chemicals companies to undertake portofolio reviews to unlock value. As divestitures continue to come to market, the second half of 2022 could see robust activity in terms of deal volume and value. Deal activities could be hampered if margins are squeezed from continued acceleration in energy and feedstock costs or supply chain disruptions and China’s zero-COVID policies are not resolved. 

Key deal drivers

Navigating uncertainty

The last two quarters demonstrated how black swan events can quickly disrupt a multi-year wave of robust chemicals M&A activity and realign how chemicals companies operate in different regions. The Ukraine war caught many chemicals companies off guard, particularly those with significant operations in Europe and that heavily relied on Russian feedstock and energy. With their competitiveness impacted, European petrochemical giants and specialty chemicals companies pivoted away from their inorganic growth strategy and refocused on margin protection and cost takeout. Their North American peers, who benefited from lower feedstock cost and a strong recovery of the US economy, are eager to deploy capital to strengthen their market position. 

Speed to unlocking value from deals

As interest rates rise and deal multiples start to decline from elevated levels, chemicals companies are accelerating their portfolio review efforts and bringing more divestitures to the market. The ongoing transformation of Royal DSM N.V. (DSM) from a diversified chemicals company to a fully focused health, nutrition and bioscience company is a prime example. Following its divestiture of Resins and Functional Materials business to Covestro AG for 1.6 billion euros in 2020, DSM sold its Protective Materials business to Avient for 1.4 billion euros this April. In May, DSM sold its Engineering Materials business to LANXESS and Advent International for 3.7 billion euros with the buyers forming a new joint venture combining Engineering Materials business with LANXESS’ High Performance Materials business. In June, DSM merged the rest of its business with Firmenich in a deal valued at approximately $21 billion. Chemicals M&A activity is expected to remain strong as businesses and assets emerge from the robust divestiture backlog built from the numerous portfolio reviews conducted by diversified chemicals companies.  

Increasing resilience and security

Chemicals companies have been operating in an integrated global supply chain for many decades and are vulnerable to any breakdown of global trade flow. For example, the recent COVID-19 lockdowns in China’s major industrial hubs were surprising and quickly threw global chemicals demand and supply off balance. The longer impact on investor confidence and global supply chain migration, however, is yet to be seen. Chemicals companies are now motivated to re-evaluate their geographic footprint so that they can mitigate risks and improve flexibility. These strategic pivots are great catalysts to drive M&A activities, particularly cross-border deals reshaping the acquirer’s capability across the globe.  

“The majority of investors remain optimistic and chemicals M&A deal activities are poised for a rebound in the second half of 2022 despite geopolitical uncertainties and recession worries casting shadows.”

— Craig Kocak, US Chemicals Deals Leader

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Craig Kocak

Craig Kocak

Chemicals Deals Leader, PwC US

Peggy  Hardek

Peggy Hardek

Partner, PwC US

Michelle Ritchie

Michelle Ritchie

Industrial Products Deals Leader, PwC US

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