Companies are engaging in M&A activities more and more. And many in the chemicals sector are trying to predict where this increased M&A activity will occur, and how it may continue in the future.
At EY, we reviewed the strategic rationale behind large chemical transactions that have taken place over the last 15 years to predict the trends that drove these deals.
Three points became clear:
- Companies with expected lagging financial performance are more likely to conduct M&A activities than are companies with strong growth and profitability characteristics.
- Companies with below-par financial performance are more likely to pursue transformational transactions.
- Companies with top-line growth and profitability potential are under increasing strategic pressure to pursue large, transformational transactions.
Says EY’s Jens-Christian Fritz, CFA, Strategy and Transactions and Head of Origination for Germany, Switzerland and Austria, “Growth and proﬁtability are what’s putting M&A on the C-suite agenda, particularly at companies that are struggling more than average in ﬁnancial performance.”
Chemical industry transactions
Over the last 15 years, the global chemical industry has experienced a significant increase in M&A activity. The number of transactions with a value over €3 billion was approximately three times as high as in the preceding 15 years (1988–2002).
These transactions were a direct result of:
- Product expansion into higher-margin segments. The geographic focus of such transactions was driven by the respective end-market profile (e.g., electronic chemicals in Southeast Asia).
- Geographical expansion. Targeted geographical expansion often took place in growth regions such as Asia-Pacific and Eastern Europe.
- Market share gains. These gains often took place in more mature regions, including Western Europe and North America.