By Rick Claar, Martec Partner
Over the past 30+ years consulting in the specialty chemicals space, I have seen about five different waves of acquisition/divestiture activity within the chemical sector. About every five to seven years, companies are either trying to get bigger and consolidate or spin-off/divest to get smaller and nimbler. We’re currently in the midst of the latest wave of such activity.
We have all seen and heard the reasons for acquisition activity. These include, to name a few:
- Entering new markets
- Penetrating new geographies
- Spreading fixed costs over a larger revenue base
- Forward-integrating downstream to capture more margin
- Acquiring and locking up key feedstocks
- Capturing new technology
- Cementing segment leadership positions
- Diversifying into new markets/industries
- Reducing risk exposure
- And many more
Conversely, divestiture or sell-off messages are sometimes the opposite, including:
- “Allowing us to concentrate on our core segment(s) leadership position”
- “Driving us to technology advances in our areas of focus”
- “Becoming smaller and nimbler”
- “Pulling us back to our core”
- “Using our core competencies to innovate ahead of our competition”
There has been a lot of recent M&A activity in the specialty chemicals market. For example, several months ago, LANXESS announced the acquisition of Chemtura as a means to expand its additives business (after recently placing part of the company in a JV via a sale to Saudi Aramco.). Prior to that, there was a flurry of M&A activity:
- Air Liquide buying Air Gas
- Solvay acquiring Cytec
- Kraton buying Arizona Chemicals
- And of course we can’t forget the granddaddy of them all, the Dow and DuPont merger.
Sure, some of the deals may have been made for the wrong reason, or simply were viewed as the “best available” and not really the “best fit.” Often, deals happen after a larger deal could not be pulled off:
- Air Products tried for years to buy Air Gas, but when it was unsuccessful, it decided to go back to its core as a gas company and sell off most of its Performance Materials Business to Evonik and spin off the remaining Electronic Materials business as Versum
Sometimes companies don’t even want to do a deal but are “forced to” by activist investors who may only have 2-3% share but bring a lot of attention.
Most of the deal activity takes place in the US and most of it (by count) is in the commodities sector, as a prolonged commodities recession has forced companies to lower costs via larger revenue spreads.
Who knows what 2017 will bring in the overall chemical sector? But I, for one, am curious to see how chemicals M&A activity will play out. Who will buy whom, who will divest what and who will be able to stay small and nimble without being gobbled up?