Chemicals deals insights: Midyear 2020

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The COVID-19 pandemic puts Chemicals industry deal activity on a temporary hold in H1 2020.

The global chemicals industry is feeling the impact of the COVID-19 crisis from every direction, spanning across supply chain disruptions, demand drop due to uncertainty in the global economy and challenges of keeping a large workforce safe in a manufacturing environment.  As a result, H1 2020 deal volumes dialed back to slightly lower than historical averages and deal value dropped significantly from 2019. The only mega deal announced in H1 2020 was the contemplated $5B acquisition of BP’s Global Aromatics and Acetyls business by INEOS.  

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“The global chemical industry faces a long climb back to normal after the COVID-19 disruption; however, we expect M&A activity to recover more quickly than the overall economy.”

Craig Kocak, US Deals Chemicals Leader

High level trends and highlights

  • In H1 2020, the chemicals sector exhibited a decline in deals volume and value.
  • Total deal volume in H1 2020 decreased by 4% to 370 as compared to H1 2019.
  • Average deal size for H1 2020 was $64.2 million as compared to $236.6 million in H1 2019. As a result, total deal value for H1 2020 declined by 77% as compared to H1 2019.
  • The contemplated acquisition of BP’s Global Aromatics and Acetyls business by INEOS for $5 billion was the only mega deal reported in the first half of 2020. The top five deals totaled up to $14.5 billion, accounting for around 60% of the total deal value in H1 2020.

  • In H1 2020, Specialty Chemicals contributed 36% of the total deal value, followed by Commodity Chemicals, accounting for 35%.
  • All sub-sectors, except Commodity Chemicals and Fertilizers & Agricultural Chemicals, experienced declines in deal value in H1 2020 as compared to H1 2019.
  • The Specialty Chemicals and Diversified & Other sub-sectors noted a decrease in deal value due to lack of mega deal. The deal volume for both the sub-sectors increased in H1 2020 as compared to H1 2019, reflecting the occurrence of smaller sized deals.

  • In H1 2020, Within-border deals accounted for 68% and 76% of deal value and volume, respectively.  Three out of the top five deals were reported under within-border transactions in H1 2020.
  • Cross-border deals made up 24% of deal volume and 32% of deal value in H1 2020.
  • The mega deal of INEOS acquiring BP’s Global Aromatics and Acetyls business for $5 billion was noted under the cross-border deals category.

  • UK & Eurozone dominated H1 2020 deal value from acquirers perspective, driven by the $5 billion mega deal of BP’s Global Aromatics and Acetyls/INEOS.
  • North America continued to be active from both acquirers and targets perspective, with around $10 billion of assets being sold, followed by Asia and Oceania with deal value of $7.5 billion, majority of which were local deals.  Asia and Oceania recorded the highest number of transactions in H1 2020.
  • South America and Europe ex-UK & Eurozone were notably low in H1 2020, both in terms of deal value and volume.



Chemicals sub-sector analysis

Commodity Chemicals experienced the highest increase in deal value of around $4 billion, driven by the BP’s Global Aromatics and Acetyls business/ INEOS deal in H1 2020. However, the deal volume was down 5% from H1 2019.

Fertilizers & Agricultural Chemicals exhibited an increase of 34% in transaction value in H1 2020 as compared to H1 2019, although the transaction volume decreased by 18%, implying deals with larger value in the sub-sector.  Another notable mega deal without disclosed value is the creation of the new Syngenta Group in January through the merger of ChemChina owned legacy Syngenta, Sinochem’s Agricultural Chemicals business and 74% stake in Adama. The new Syngenta Group employs 48,000 employees across more than 100 countries and generated $23 billion sales in 2019 and will certainly shake up the Ag Chemicals sector for years ahead.

Industrial Gases is the only sub-sector in H1 2020 that faced decline in both the deal value and deal volume as compared to H1 2019, a decrease of 55% and 47%, respectively.

Specialty Chemicals led in both deal value and volume, contributing 36% and 48% of the total deal value and volume respectively in H1 2020, and representing one of the top five deals.

Diversified & other experienced a significant decline of 93% in the deal value in H1 2020 as compared to H1 2019 due to lack of mega deals.


Financial vs. strategic investors

Strategic investors continued dominating deal value and volume by contributing 68% and 56% share of total deal value and volume, respectively, in H1 2020. Strategic investors sponsored four out of the top five deals in H1 2020.

Financial buyers remained active and began to increase activity during Q2. The number of deals executed by the financial investors surpassed the strategic investors in Q2 2020, for the first time in the last 12 quarters, as strategic investors were focusing on stabilizing their existing operations during the pandemic. 


Chemicals deals outlook

Chemicals deals activities started on a strong note in January with the creation of the new Syngenta Group, one of the largest agricultural chemicals companies in the world, before taking a dive amid the COVID-19 pandemic. Numerous deals have been postponed or terminated in H1 2020 as investment theses are no longer valid for existing deals under current financing environment and economic situation; although a glimpse of hope became visible toward the end of Q2.

The global pandemic will have a broad and lasting impact on people’s ways of being, resulting in profound changes in the global economy and M&A environment as outlined in PwC’s publication Tomorrow’s deal dynamics: The road ahead. The chemicals industry is certainly not immune. In this landscape, chemical deals activity will look different going forward.

Consolidation and value creation: With the global economy going into a recession and people’s mobility being limited in the years to come, we expect certain end markets will face a prolonged decline in demand. Productivity and operational efficiencies will also be impacted due to the priority to of promoting a safe and secure environment for the workforce. These factors are expected to drive further consolidation as companies focus on core portfolio growth, opportunities arising from distress situations, divestitures of non-core assets and post-deal value creation to improve return on investment. This is more evident in the Commodity Chemicals and Agricultural Chemicals sub-sectors with the recently announced INEOS/BP deal and Dow’s divestiture of railway hubs to Watco.

Innovation driven: The trajectories of the demand of many end market applications of chemical products have been altered, presenting both challenges and opportunities. Innovation driven deals will start to play a more important role in forming a new inorganic growth strategy including asset-light technology acquisitions or even cross-industry deals by chemical giants. This is particularly relevant for the Speciality Chemicals subsector.

Cross-border deals: As a result of the continued acceleration of decline of globalization and the hard lessons learned of the vulnerability of the global chemicals supply chain, chemical companies may use cross-border deals as a way to realign their footprint and supply chain in each of the major countries in which they operate. Due to the capital intensive nature of chemical operations and long lead time to quality suppliers / sources of feedstock, we expect the strategic reposition will continue driving robust cross-border deals activities in the next few years.

Private equity: With trillions of dry-powder, private equity (PE) has been sitting on the sideline with concerns of high valuation of target assets. The unexpected global pandemic and recession will present opportunities for PEs to look for attractive assets with reasonable or even depressed valuations. History shows PEs with chemical industry focus and capable of unlocking value through operational improvement can see higher returns than their peers.

Capital markets: While small privately held chemical companies may battle for liquidity, global chemical giants saw robust availability of capital through equity and debt markets in the current monetary policy environment. This will further strengthen their ability to make strategic acquisitions and drive a robust M&A market in the next few years once they stabilize their operations.

In summary, an inorganic growth strategy focusing on deals may become even more vital for chemicals industry players to succeed in the current global health crisis and economic downturn. With ample capital available, chemical deals activities are expected to rebound prior to a full recovery of global economy. 

About the data

The information presented in this report is an analysis of deals in the global chemicals industry. Deal information was sourced from Refinitiv 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 July 1, 2017 and June 30, 2020, 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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