Global chemicals deals insights: Year-end 2019

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Executive summary

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.

chemicals-deal-summary

“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.”

Craig Kocak, US Chemicals Deals Leader

High level trends and highlights of 2019

Highlights

  • In 2019, the deal value increased by 29% to $185.7 billion when compared to 2018. Similarly in Q4 2019, the deal value increased by a whopping 6.6x to $72.8 billion over Q3 2019.
  • Deal volume in 2019 declined by 15% to 785 deals when compared to 2018. Similarly in Q4 2019, deal volume declined by 27% to 168 deals over Q3 2019.
  • Average deal size for 2019 increased by 61% to $457.5 million compared to 2018. Similarly in Q4 2019, the average deal size grew by a whopping 8.7x to $817.9 million when compared to Q3 2019.

Deals by disclosed value and average deal size

In 2019, the average deal size grew by 61% to $457.5 million from $284 million in 2018. This significant increase in average deal size is primarily due to the four megadeals. Similarly in Q4 2019, the average deal size grew by a whopping 8.7x to $817.9 million from $94.2 million in Q3 2019. This increase in average deal size is due to the two megadeals that happened in Q4 2019.

Financial vs. strategic investors

Strategic investors dominated 2019 by sponsoring 90% of the deal value, worth $167.1 billion. Strategic investors also stayed ahead of the financial investors in terms of deal volume by contributing 65% share. Similarly in Q4 2019, strategic investors remained the leader by contributing 88% and 63% share in the deal value and volume, respectively.

Regional analysis

In 2019, Asia and Oceania was the most active acquirer region with 56% and 54% share in deal value and volume, respectively. The region was followed by North America in deal value. In deal volume, UK and Eurozone and North America followed Asia and Oceania with 18% share each. Asia and Oceania was the most targeted region in 2019, contributing 54% and 55% share in deal value and volume, respectively.


Highlights of deal activity

Chemicals deals outlook

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.

About the data

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.

Contact us

Craig Kocak

Chemicals Deals Leader, PwC US

A.J. Scamuffa

Chemicals Leader, PwC US

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