M&A activity in chemicals industry forecast to climb in 2022

Global consultancy partnership Kearney has released today the 9th edition of its Chemicals Executive M&A Report. The report explores global M&A activity in the chemicals industry each year, analysing past activity and developing forward-looking insights from surveying chemicals executives across the globe.

Over the next 12 months, Kearney is predicting a rise in M&A activity and ESG focus following three years of steady decline. Deals value has shrunk from $333bn in 2019 to the $236bn recorded in 2021, a decrease of 29%. The transaction size has also decreased sharply, with fewer ‘mega-deals’ available. In 2019, 21% of recorded deals topped $10bn, compared to only 3% in 2021.

The sector sees room for a rebound in the next 12 months, with the value of announced deals in 2021 already up 50% on 2020. 41% of executives surveyed expected M&A activity in the sector to increase over the next 12 months, with an additional 9% predicting a strong increase, compared to only 36% who expected numbers to remain stable and just 14% predicting a decline. One reason for this optimism is the availability of capital from strategic and financial investors; another is a push from strategic investors to upgrade their portfolios to more sustainable and higher value-add materials.

The 2021 pipeline of announced deals is also well above the 2017 and 2018 results, showing a marked growth path in chemicals in 2022.

ESG will play a crucial role in the investment decisions made in 2022, with  more respondents listing a ‘Strong portfolio shift toward ESG’ as important for the next 12 months than any other category (35%). 85% of executives predicted that this ESG agenda would likely include acquiring nascent technologies to enable ESG, and 75% that M&A activity will include divesting businesses unfit for ESG goals.

The report also stated that to fully leverage ESG-related M&A, chemicals players will need to consider bolder and more comprehensive moves, such as taking a very broad perspective on ESG-driven M&A that includes growth as well as maintenance-focused M&A. In line with that, 75 percent of surveyed chemicals executives expect ESG-driven divestments to grow, and 60 percent of executives expect investments in renewable energy sources to increase and 65% predict a focus on acquiring new businesses that support ESG goals.

Thomas Rings, a partner at Kearney, noted that it was encouraging to see ESG listed as a priority and driving force for the year ahead.

“Previously we’ve seen very few real M&A deals fueled by ESG, but this is set to change dramatically. For the first time, chemicals companies are divesting businesses because of ESG reasons and we may soon see the full impact of how this will change chemicals M&A going forward. Of course, businesses should also look beyond just buying and selling to reach their climate goals, with partnerships, joint ventures and innovation paying dividends for the climate-conscious company," he concluded.