A.T. Kearney’s research identifies five core drivers of the surge in M&A deals: limited returns on organic growth options; favourable feedstock prices especially in the US; lower oil prices; portfolio optimization and pressure from activist investors.
Two-thirds of executives surveyed believe activity will increase in 2016 heralding a new era for chemicals conglomerates as companies look to divest non-core or subcritical assets and pursue scale in core areas through M&A deals. More than three quarters of those surveyed expect an increase in scale plays in value chains in 2016.
North America to Become M&A Mecca
North America is predicted to have the strongest increase in chemical M&A activity as low oil prices will benefit specialty chemical producers. The North American shale revolution has brought large quantities of low-cost gas and liquid feedstock to the market, giving U.S. chemical producers have significant advantages over Western European players.
China Continues its Shopping Spree
China is also forecast to have a significant increase in deals, primarily driven by outbound transactions as a weakening Yuan will help Chinese companies to acquire overseas. “China’s influence on the global M&A market is likely to increase in 2016 as more companies look to acquire world-class know-how and growth opportunities outside their slowing home markets. Undervalued targets in mature markets such as Europe are likely to be attractive targets for these acquirers,” said Linus Hildebrandt, Principal, Asia Pacific, A.T. Kearney.
M&A across all industries in 2015 reached the highest levels since the 2007 peak, with more than $4 trillion worth of transactions, helped by strong cash positions and low financing costs for acquirers.