Chemicals industry deal activity strongly rebounded on a value basis in the fourth quarter, lifting 2019 total deal value above last year’s level. However, deal volumes continued to decline quarter-over-quarter, making 2019 the least active year in recent history amid expectation of a slowing economy, geopolitical strains and trade tensions. The largest announced transaction during the quarter was the contemplated $45.4 billion Reverse Morris Trust (RMT) acquisition of DuPont’s Nutrition and Biosciences Division by International Flavors and Fragrances Inc. The Specialty Chemicals sub-sector continues to attract the highest valuations and interest.
“The inconclusive nature of Phase I US-China trade agreement coupled with recent increases in geopolitical tensions continue to put pressure on chemical companies to evaluate and assess the impact these events could have on their business and strategy including M&A.”
Thanks to a flurry of megadeals in the last quarter, 2019 turned out to be a robust M&A year in terms of total deal value for the Chemical sector despite ongoing global trade tensions, increasing geopolitical risks, and global economic concerns.
Looking ahead, an increasingly complex landscape that influenced 2019 deals is likely to endure into 2020. First, global chemical giants will continue aiming to transform their businesses via megadeals leveraging creative structures and alternative sources of low-cost financing with the DuPont/IFF RMT transaction as a prime example. As has been the case with most other megadeals, there continues to be a focus on scaling the “core” and spinning off or divesting of the non-core businesses.
Second, as geopolitical tensions flare and uncertainty remains around US-China trade we believe buyers will remain more domestically focused or attempt to consolidate with domestic rivals to create national champions. The recent announced Showa Denko/Hitachi deal fits this profile. And the contemplated merger and future listing of ChemChina and Sinochem’s agriculture businesses globally (announced this month) is another interesting experiment of achieving scale while deleveraging.
Third, as previously discussed, the flow of privately held top tier specialty businesses has slowed and there is a much smaller supply of these assets that could come available keeping valuations high in the specialty sub-sector even amid the economic uncertainties. However, this lack of availability could help contribute to flat or declining volumes as fiscal year 2020 progresses. This may also result in the extension of timelines and prolonged deal processes.
For the reasons noted throughout, coupled with the cash available on corporate balance sheets and at private equity, we expect the chemical market to still be active in 2020 but anticipate that volumes and valuations may remain flat or slightly decline in the near future, particularly if geopolitical tensions or an economic slowdown materializes.
The information presented in this report is an analysis of deals in the global chemicals industry. Deal information was sourced from Thomson Reuters and includes deals for which targets have an SIC code that falls into chemicals mid-industry group. Certain adjustments have been made to the information to exclude transactions which are not specific to chemicals or incorporate relevant transactions that were omitted from the SIC industry codes.
This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between October 1, 2016 and September 30, 2019, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.
Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.