Global chemicals deals insights: Q2 2018
Executive summary
Global chemicals industry deal activity continues to be aided by strong performance of Specialty Chemicals sub-sector, which also recorded most of the megadeals in this quarter. Anticipation of strong cash flow as a result of lower corporate taxes in the US increased investment sentiment of strategic buyers. On the other hand, high valuation multiples, rising interest rates and geopolitical concerns have kept private equity investors at bay despite record high dry powder. Additionally, the ongoing trade tensions between the US and China may limit the deal activity as companies could face liquidity and supply chain cost pressures and shift their focus on scenario planning to keep operations smooth. Specifically, as a response to the 25% import duties forced by the US, China’s countermeasures aimed to target large-volume chemicals made in the US along with some major plastics, such as polyethylene and polyvinyl chloride.
Amidst these situations, an anticipated correction in oil prices, required divestitures upon regulatory approval of megadeals and US tax reform are likely to offset the impact of these risks and continue to drive increased M&A activity throughout 2018.
Key trends/highlights
- Deal value in Q2 2018 was $35 billion, 42% above the last quarter.
- There were 189 deals this quarter, 13% lower than the last quarter.
- Average deal size for 2018 YTD fell by 14% as compared to two-year historical average of $173.1 million.
- Majority of deal activity remains in the Asia & Oceania region followed by North America.
“While high valuation, rising interest rates and ongoing trade tensions may have deal makers pause, we believe there’s enough tailwind keeping global chemicals M&A activities strong. Regulators have demanded sizable assets to be divested as approval conditions for several megadeals, filling a robust M&A pipeline for months to come.”
