Dubai, UAE, March 19, 2019: Global chemical mergers and acquisitions (M&A) activity in 2019 is expected to pull back slightly from 2018 levels against a backdrop of uncertainty—rising interest rates, trade tensions, and slowing economic growth. Despite a potential decrease in M&A deal volume, Deloitte Global's 2019 chemical industry mergers and acquisitions outlook predicts that there will still be a robust market for M&A in the industry.
Global M&A volume reached 600 deals in 2018, a decline of 5 percent compared to 2017, but total M&A value was still higher than in each of the years from 2010 to 2013. After a slow first quarter, deal volume increased in each successive quarter in 2018, and deal values were also strong, with billion dollar-deals increasing in both quantity and value.
“In 2019, we expect a modest decline in chemical industry M&A activity, but as demonstrated in the past, activity should still be strong despite global uncertainty,” says Bart Cornelissen, Regional Energy & Resources Leader and Managing Partner of Monitor Deloitte, Middle East. “Underlying conditions for a strong M&A market remain intact—ample cash on-hand for buyers, availability of relatively cheap credit, and the desire to increase ROI for investors.”
For M&A activity in the chemical industry to continue to be strong, there will be headwinds for organizations to navigate in the coming year. The IMF recently cut its global economic growth rate expectation to 3.5 percent in 2019; growth in industrial production is also under pressure in many economies. Additionally, trade conflicts threaten to increase uncertainty and lessen the attractiveness of cross-border M&A deals. Chemical industry companies will be closely following trade negotiations between the United States and China, as well as ongoing Brexit developments.
“Protectionism and trade concerns are weighing heavily on companies and global regulators continue to heavily scrutinize deals. As a result, we may see hesitancy towards cross-border M&A deals,” continues Cornelissen. “However, the equity market declined in the fourth quarter, which may make high deal valuations—a limiting factor for M&A in 2018—more palatable to investors moving forward.”
There is also an ongoing discussion in the industry about the “circular economy” to reduce plastic waste. Significant actions are being taken in an effort to create programs and solutions that can be applied globally to eliminate harmful pollutants, especially in areas with “high plastic leakage.” These efforts will likely result in new innovation and startups and could drive additional M&A activity.
Activist investors continue to be a force in the industry, making a significant impact on the chemical M&A market in terms of shaping deals and impacting companies' strategic direction. Shareholder activists are expected to continue pressuring companies, and in some cases, their investments may signal more divestitures in 2019.
“An important trend to observe in the coming year is the impact of the digital and circular economy on chemical industry M&A,” says Cornelissen. “Highly diversified companies are already leveraging digital technologies across many functions. M&A will continue to be a tool for companies to stay ahead of competitors and drive transformation.”