The route for transformation for the GCC petrochemical industry
Source: The Boston Consulting Group , Author: Posted by BI-ME staff
Posted: Tue December 19, 2017 11:45 am

UAE.The Boston Consulting Group (BCG), in collaboration with the Gulf Petrochemicals & Chemicals Association (GPCA), recently released its report “Consolidation as a Route to Transformation”, which highlights consolidation as a key imperative for the GCC petrochemical industry in order to remain competitive globally.

The report explores how consolidation can support growth, value generation and increase the competitiveness of GCC producers.

“Multiple market developments — both internal and external —are reshaping the petrochemical industry in the Middle East”, said Mirko Rubeis, Partner & Managing Director at BCG. “We believe that consolidation is an effective route to positive transformation for GCC producers.”

Drivers of global consolidation

Since the global financial crisis, the M&A in the chemicals industry has risen from a low of $38B deals in 2009 to a record of $166 B in 2017. Segment consolidation contributed to over 50% M&A deals during this period. Findings of the report recorded that 80% of all global deals originated from North America, Europe and China.

Growth is a key driver for value and a primary contributor to the long-term Total Shareholder Return. Consolidation can support growth and value generation in multiple ways. Some companies grow by consolidating existing segments to become market leaders, and translating this into value — not only in terms of increased market and application coverage, but also with respect to optimization of site network, cost structure and supplier eco-system.

Companies also consolidate to integrate further down the value chain and capture more value; and as is the case with most value chains, the “value gates” tend to migrate upstream or downstream, and an increased coverage of the value chain provides higher margin stability over time. Another alternative for companies is to turn to M&A to diversify growth into completely new platforms, including consolidation, and then subsequently carve out businesses to make their portfolios more coherent.

“Every company aspires to achieve high-value creation for its shareholders, but sustaining high-value creation over extended periods of time poses an even greater challenge”, says Udo Jung, Senior Partner & Managing Director at BCG. “In a slow growth environment, M&A’s provide companies with a potential avenue for growth and a possible avenue to higher earnings and margins.”

Options for GCC producers

The continued oil price environment has reduced the margin advantage that producers in the Middle East have historically enjoyed over their counterparts in Europe and Asia. Additionally, regional factors like reduced availability of advantaged ethane feedstock in the region, the removal of subsidies on feedstock and utilities, and the limited demand for local chemicals are further compressing margins for GCC producers.

“Given the accelerated consolidation we are witnessing in the global petrochemical landscape, this is further increasing the competitiveness of global peers in relation to GCC producers”, notes Rubeis. “GCC players need to consider implementing immediate actions to respond to global peers and remain competitive within the marketplace.”

“For the GCC petrochemical industry, consolidation will provide several industry-enriching benefits. It will create market leadership, and enable building scale in certain products where GCC producers are sub-scale; it will help producers achieve portfolio coherence and develop a more focused approach; it will increase cost competitiveness to help build scale for smaller stand-alone companies, while reducing costs and improving efficiency; it will enhance capabilities by bringing different companies together; and it will increase attractiveness to potential partners as GCC producers seek global targets to diversify their feedstock,” added Jung.

Consolidation need not be a full merger of two companies. In fact, companies can capture value even by the consolidation of certain functions and services. For example, joint procurement by a group of companies can drive down procurement cost or for example, dedicated shared services can drive efficiencies in support services.

To achieve successful consolidation, the report highlights key imperatives GCC producers should consider before beginning the consolidation process:

• Stand-alone attractiveness. Businesses should not be fundamentally unattractive (although it may be challenged due to lack of scale and resources), as consolidation would not solve all problems.

• Portfolio coherence. The resulting product portfolio should be focused and coherent to allow for the strengthening of market positioning in specific value chains.

• Synergies. Marketing synergies, or cost efficiencies, should have a significant impact on the bottom line; nevertheless, companies should be conservative and avoid over-estimating synergies.

• Additional strategic value option. Careful attention should also be paid to the evaluation of the strategic advantage of consolidation (e.g. preempt competitor moves).

• Transaction feasibility. Several transactions, which look very attractive theoretically, fail to materialize due to execution risks (e.g. valuation, legal/financial risk, integration risk). In case of Middle East regulatory hurdles, an inadequate infrastructure for M&A can pose significant challenges, and members are urged to take these into consideration.

• Successful post¬-merger integration. Even if the consolidation target is right, it requires successful post-merger integration to ensure the consolidation goals are realized.

Photo Caption: Mirko Rubeis, Partner & Managing Director at BCG

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with more than 90 offices in 50 countries.

For more information, please visit

About The Gulf Petrochemicals and Chemicals Association
The Gulf Petrochemicals and Chemicals Association (GPCA) represents the downstream hydrocarbon industry in the Arabian Gulf. Established in 2006, the association voices the common interests of more than 250 member companies from the chemical and allied industries, accounting for over 95% of chemical output by volume in the Gulf region. The industry makes up the second largest manufacturing sector in the region, producing over US$ 108 billion’s worth of products a year.

The association supports the region’s petrochemical and chemical industry through advocacy, networking and thought leadership initiatives that help member companies to connect, to share and advance knowledge, to contribute to international dialogue, and to become prime influencers in shaping the future of the global petrochemicals industry. Committed to providing a regional platform for stakeholders from across the industry, the GPCA manages six working committees - Plastics, Supply Chain, Fertilizers, International Trade, Research and Innovation and Responsible Care - and organizes six world-class events each year. The association also publishes an annual report, regular newsletters and reports.

For more information, please visit



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