Chemicals M&A surge predicted as Middle East and China go head-to-head for assets

Capturing technology and know-how to serve downstream markets will be the driver for many deals

KPMG’s chemicals specialists are predicting a two-horse race in the battle to acquire high-value assets and intellectual property, as players in the Middle East and China compete to seize the opportunities presented by a surge in global demand for downstream chemicals.

While enthusiasm for M&A activity around the world seems to be faltering in the face of returning volatility, recent research from KPMG indicates that around $100bn of deals could be on the table for global chemicals in the next two years.
Chris Stirling, EMA Head of Chemicals and Pharmaceuticals at KPMG, commented:
“With demand for downstream chemical products set to increase over the next three years, the major players in the Middle East and Asia are attempting to supplement their focus on asset-intensive commodity chemicals production with more labour-intensive specialty chemicals to capture this demand.

“However, in order to make this step-change, they need fast access to the well-developed technology and intellectual property that is principally held by mature players in the USA, Europe and Japan – and the good news is they have cash to go shopping.

“We therefore predict an intensive battle between companies in the Middle East and China to snap up the very best assets. And with companies from India and Brazil also looking to make a play in this arena, competition will only get fiercer over the coming months.

“However, there’s one thing for certain – the global chemical industry of the future will be dominated by those companies who win the current race downstream.”

Speculating on the possible winners and losers, Chris Stirling continued: “It’s a tough one to call, but it could be argued that the likes of Saudi Arabia and other Middle Eastern players are able to move more quickly to get deals over the line than their counterparts in the Far East, who may have to jump through far more regulatory hoops in their own jurisdictions. Couple this with the fact that the Middle East region’s abundance of oil and natural gas reserves affords businesses easy access to both energy and feedstock at relatively low prices, and I think players from these countries really will be a force to be reckoned with over the coming few years.”

Chris Stirling concluded: “While circumstances suggest that there has never been a better time for ambitious chemicals companies from the emerging markets to get on the acquisition trail, our one note of caution would be a reminder that care needs to be taken to ensure that you really do get the best synergies possible from any deal.

“I would suggest there are four elements to this. First, it goes without saying, but do your homework beforehand – intensive preparation is the key to any deal; but then make sure this is then followed-up with comprehensive due diligence. Too often, M&A doesn’t deliver because the buyer simply doesn’t have a thorough understanding of what they’re buying.

“Also do not under-estimate the importance of building good relationships – and once you have these established, be prepared to negotiate and compromise to get what you want. If it looks like a more traditional acquisition is not possible, then consider entering into a joint venture, which may prove to have the same benefits but with less up-front financial risk.”

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Notes to editors:
About the research
KPMG’s chemicals and pharmaceuticals practice built an M&A ‘road map’ of the global chemicals industry; analysing which companies have the capacity for deals (based on their debt and cash profiles), combined with market knowledge of companies that are looking to complete transactions in the next two years.

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This release was published on openPR.