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Global chemical industry to see modest growth, driven by M&A activity

04.09.2013  |  HP News

In its 2013 outlook, Deloitte finds that the financial influences of globalization, market maturation in China, and raw material trends will position M&A as an effective strategic tool.

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The global chemical industry is poised for modest growth in 2013, according to a report released Tuesday from global consultancy Deloitte, with merger and acquisition (M&A) activity likely to be a key factor in helping companies achieve top line growth.

The growth comes despite challenges associated with energy and feedstock volatility and regulatory policies, the group noted.

According to the report from Deloitte Touche Tohmatsu Ltd.'s (DTTL) global manufacturing industry group, the chemical industry is experiencing a portfolio realignment, putting increased pressure on companies to find new growth markets.

"We are looking at a market for 2013 and beyond where the financial influences of globalization, China's market maturation, and raw materials trends will position M&A as a highly effective strategic tool," said Dan Schweller, M&A leader for DTTL's global manufacturing industry group.

The report identifies multiple factors driving growth of M&A activity around the world, particularly for North America, Europe, and China, including new markets, shale gas discoveries and progression of the advanced materials systems industry.

This comes in spite of continued Eurozone concerns and slow recovery in other mature markets.


North America

In North America, chemical industry M&A activity has undergone a dramatic shift and the upswing is expected to continue, the report says. The recovery of the construction market, shale gas availability and lower feedstock prices will likely play a role in increased M&A activity in 2013.

The Deloitte report also predicts continued stamina for top-chemical commodity producers to consider new facility expansion and to restart suspended facilities in North America. Top global chemical manufacturers are expected to invest more than $40 billion in such projects over the next several years.

"The North American chemical industry is showing dramatic change, attributable in part to favorable shale gas economics supporting the petrochemical sector," said Duane Dickson, global chemicals sector leader for DTTL.

"Companies that were looking to the Middle East and Asia for M&A investments just a few years ago are now turning their attention to growth opportunities in North America."


Europe

In Europe, the chemical industry is among the most active sectors pursuing M&A opportunities, the report finds. Companies with liquidity are making acquisitions to transform their business and execute growth strategies.

Key drivers of this activity include strong balance sheets, companies eager to build market positions in core areas, continued portfolio realignment, and an increased focus on international investments, especially in emerging markets.

A number of struggling companies, on the other hand, have been focused on improving operational processes to increase financial performance. In addition, some stressed companies are forced to consolidate, a move driven by the disposal of non-core assets to raise cash to reduce excess capacity and rationalize facilities.

"European chemical companies are cautiously optimistic as a result of the current economic climate," said Dickson. "Many are effectively using strategic growth plans and focusing on better value-added products and less cyclical businesses. These moves will likely help enable companies to be more agile for the future and create prospects for sustainable profitable growth."


China

For the year ahead, the Deloitte reports signals that China's chemical sector will likely continue to grow, but at a slower pace compared to the boom between 2000 and 2009.

Structural imbalances evidenced by overcapacity in certain subsectors are factors likely to drive Chinese companies to identify and fill market gaps, as they strategically pursue M&A as a means to raise the future value of a company.

Overall, organic growth for the industry will likely be modest, enabling M&A to play a prominent role in driving growth in 2013. Global chemical companies are expected to place a greater focus on realigning their portfolios and investments to capture above average revenue growth and capitalize on new market opportunities.


For information on how to download a full copy of the 2013 Global Chemical Industry Mergers and Acquisitions Outlook,
visit the Deloitte website.



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