News from The Valence Group Chemicals M&A conference: Specialty chems to drive M&A for next 5-10 years

Tuesday, 27 October 2015 | Will Beacham | ICIS Chemical News

NEW YORK (ICIS)–The current boom in chemicals mergers and acquisitions (M&A) will continue for the next 5-10 years as companies seek to secure growth by buying into specialty chemicals, according to investment bank The Valence Group on Tuesday.

With low growth in mature markets and slowing emerging economies, companies that want to secure faster growth and higher margins will seek acquisitions in specialty-chemicals markets, according to partner Anton Ticktin.

Speaking at The Valence Group M&A Conference in New York he said: “In the medium-to-long term, what’s driving the market is the need for growth, which is currently difficult to find. There is a structural change, which is pushing almost everyone downstream,” he said.

Chinese and Middle Eastern producers are expanding their portfolios downstream from base commodity chemicals and are encroaching and taking market share from established players in mature markets. This is forcing players in Japan, Europe and the US to move further downstream, said Ticktin.

According to Valence analysis, there have been almost twice as many large ($750m-$1bn) specialty chemical deals in the last five years as there were in the previous 10.

“We’ll see more $1bn-plus specialty-chemicals deals and more consolidation in the specialty-chemicals field – the market will look very different. Companies want to get larger to prevent themselves from becoming acquisition targets,” he said.

Despite the current macro-economic turmoil, this year will be the second strongest on record for chemicals M&A after 2007, according to Valence Group analysis.

There have been around 15 $1bn-plus deals per year for the last five years. Trading multiples and transaction values have also risen to a high point and are likely to remain high, driven by strong demand.

The Valence Group chemicals sub-sector index shows that the majority of industry segments have enjoyed increased valuations, with particularly strong performances from compounding, pharmaceuticals and agricultural intermediates and food-and-feed ingredients.

“Low interest rates, activist investors and CEO confidence have all contributed to the current boom.

The industry has restructured from being volume and scale driven to being much more value and profit driven,” he said.

Profit growth and profitability in specialty and performance chemicals has outstripped commodities and intermediates over the past 20 years. As the sector has consolidated and gained extra scale, that profit growth has accelerated, according to Ticktin.

Valence analysis suggests that chemicals M&A for the next 5-10 years will be focussed on 15 segments, including water treatment, personal care, agrochemicals and fine chemicals, where higher profitability and protection from emerging-market competition will be greatest.

“Private equity has been squeezed out by corporates, but we think it will come back. Private-equity players will team up with strategic buyers to buy larger assets. There is a wall of money among private equity and strategic buyers which has to go somewhere,” said Ticktin.