Global chemical mergers and acquisitions (M&A) activity is expected to remain buoyant in 2016, building on the strong momentum experienced in 2015, with continued portfolio realignment and consolidation plays in various segments, says a report from Deloitte Global. According to the Deloitte Touche Tohmatsu Limited (Deloitte Global) Consumer & Industrial Products Industry group’s 2016 global chemical industry mergers and acquisitions outlook, companies have an increased focus on developing their core strengths and are looking to acquisitions to deliver growth and greater shareholder value.
In 2016, key chemical segments of fertilizers and agriculture chemicals, diversified and industrial gases are all likely to experience an uptick in M&A transactions, according to Deloitte. Other trends driving an increasing portfolio change are tax-free spin-offs and divestitures, as companies position themselves for innovation and growth. “The spin-off momentum is likely to continue in 2016, given the often low tax basis in legacy businesses, resulting in tax-free spins delivering greater shareholder value than straight dispositions,” says Duane Dickson, Deloitte Global leader, Chemicals & Specialty Materials Sector.
In the Americas region, the United States is expected to continue to be a prime M&A market in 2016. While there is cautious optimism of a recovering economy in Brazil, it is not likely there will be significant chemical M&A activity during 2016, although lower valuations could generate interest in Brazil from foreign investors with a long-term investment horizon, according to Deloitte. Within the European, Middle East and African region, M&A activity in 2016 will likely be centered in Western Europe as portfolio restructuring continues. In the UK, investor sentiment is expected to remain strong, driving both inbound and outbound M&A activity. In Africa, consolidation will likely continue, underscored by three mega-trends including shortage of water, population growth and an expanding middle class.
Agricultural chemicals, specialty chemicals and fine chemicals will remain top segments to watch in the Asia Pacific region, especially in China, according to Deloitte. In Japan, deals that strengthen high margin businesses are expected including those in high performance chemicals, with particular focus on segments, such as life sciences chemicals. The Indian chemical industry M&A outlook for 2016 will likely be driven by commodity chemicals and significant transaction volumes expected in the specialty and agricultural chemicals segments.
For more information, visit: www.deloitte.com/chemicals