Chemical industry M&A expected to face challenges, but remain robust amid global uncertainty: Deloitte Global report
Source: Deloitte , Author: Posted by BI-ME staff
Posted: Wed March 20, 2019 11:51 am

UAE. Global chemical mergers and acquisitions (M&A) activity in 2019 is expected to pull back slightly from 2018 levels against a backdrop of uncertainty—rising interest rates, trade tensions, and slowing economic growth.

Despite a potential decrease in M&A deal volume, Deloitte Global’s 2019 chemical industry mergers and acquisitions outlook predicts that there will still be a robust market for M&A in the industry.

Global M&A volume reached 600 deals in 2018, a decline of 5 percent compared to 2017, but total M&A value was still higher than in each of the years from 2010 to 2013. After a slow first quarter, deal volume increased in each successive quarter in 2018, and deal values were also strong, with billion dollar-deals increasing in both quantity and value.

In 2019, we expect a modest decline in chemical industry M&A activity, but as demonstrated in the past, activity should still be strong despite global uncertainty,” says  Bart Cornelissen, Regional Energy & Resources Leader and Managing Partner of Monitor Deloitte, Middle East. “Underlying conditions for a strong M&A market remain intact—ample cash on-hand for buyers, availability of relatively cheap credit, and the desire to increase ROI for investors.”

For M&A activity in the chemical industry to continue to be strong, there will be headwinds for organizations to navigate in the coming year. The IMF recently cut its global economic growth rate expectation to 3.5 percent in 2019; growth in industrial production is also under pressure in many economies.

Additionally, trade conflicts threaten to increase uncertainty and lessen the attractiveness of cross-border M&A deals. Chemical industry companies will be closely following trade negotiations between the United States and China, as well as ongoing Brexit developments.

Protectionism and trade concerns are weighing heavily on companies and global regulators continue to heavily scrutinize deals. As a result, we may see hesitancy towards cross-border M&A deals,” continues Cornelissen. “However, the equity market declined in the fourth quarter, which may make high deal valuations—a limiting factor for M&A in 2018—more palatable to investors moving forward.”

There is also an ongoing discussion in the industry about the “circular economy” to reduce plastic waste. Significant actions are being taken in an effort to create programs and solutions that can be applied globally to eliminate harmful pollutants, especially in areas with “high plastic leakage.” These efforts will likely result in new innovation and startups and could drive additional M&A activity.

Activist investors continue to be a force in the industry, making a significant impact on the chemical M&A market in terms of shaping deals and impacting companies’ strategic direction. Shareholder activists are expected to continue pressuring companies, and in some cases, their investments may signal more divestitures in 2019.

An important trend to observe in the coming year is the impact of the digital and circular economy on chemical industry M&A,” says Cornelissen. “Highly diversified companies are already leveraging digital technologies across many functions. M&A will continue to be a tool for companies to stay ahead of competitors and drive transformation.” 

To view the whole report, click here.

Photo Caption: Bart Cornelissen, Regional Energy & Resources Leader and Managing Partner of Monitor Deloitte, Middle East

About Deloitte:
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms are legally separate and independent entities. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our network of member firms in more than 150 counties and territories, serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 280,000 people make an impact that matters at www.deloitte.com.

About Deloitte & Touche (M.E.):
Deloitte & Touche (M.E.) (DME) is a licensed member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is a leading professional services firm established in the Middle East region with uninterrupted presence since 1926. DME’s presence in the Middle East region is established through its affiliated independent legal entities which are licensed to operate and to provide services under the applicable laws and regulations of the relevant country.

DME’s affiliates and related entities cannot oblige each other and/or DME, and when providing services, each affiliate and related entity engages directly and independently with its own clients and shall only be liable for its own acts or omissions and not those of any other affiliate.

DME provides audit and assurance, tax, consulting, financial advisory and risk advisory services through 25 offices in 14 countries with more than 3,300 partners, directors and staff. It has also received numerous awards in the last few years which include, Middle East Best Continuity and Resilience provider (2016), World Tax Awards (2017), Best Advisory and Consultancy Firm (2016), the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organization.

The information contained in this press release is correct at the time of going to press.

 

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