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Mergers & Acquisitions

Chemical M&A rebounded in 2018

Tax cuts juiced deal-making, but trade was a drag on the fourth quarter

by Melody M. Bomgardner
January 24, 2019 | APPEARED IN VOLUME 97, ISSUE 4

 

Chemical firms spent $100 billion on mergers and acquisitions in 2018, up 56% from 2017 but far short of the $193 billion they spent in 2016, according to the consulting firm PricewaterhouseCoopers. The number of acquisitions was down 8% last year compared with 2017.

Overall, 2018 was a solid year for snapping up pricey assets, PwC says. Average deal size jumped 59% to $213 million. And a large number of acquisitions were priced above $1 billion. One likely reason for the big spend was the cut in US corporate tax rates, enacted in December 2017.

Top five

Largest 2018 acquisitions show specialties' global appeal.

ANNOUNCED BUYER, LOCATION BUSINESS, LOCATION DEAL VALUE ($ BILLIONS)
March Carlyle Group, US AkzoNobel Specialty Chemicals, Netherlands $12.6
May Wanhua Chemical Group, China Yantai Wanhua Chemical Industry, China 10.2
May International Flavors & Fragrances, US Frutarom Industries, Israel 6.4
July Taiyo Nippon Sanso, Japan Praxair Industrial gas business, Europe 5.8
July UPL Corp, India Arysta LifeScience, US 4.2

ANNOUNCED: March

BUYER, LOCATION: Carlyle Group, US

BUSINESS, LOCATION: AkzoNobel Specialty Chemicals, Netherlands

DEAL VALUE ($ BILLIONS): $12.6


ANNOUNCED: May

BUYER, LOCATION: Wanhua Chemical Group, China

BUSINESS, LOCATION: Yantai Wanhua Chemical Industry, China

DEAL VALUE ($ BILLIONS): 10.2


ANNOUNCED: May

BUYER, LOCATION: International Flavors & Fragrances, US

BUSINESS, LOCATION: Frutarom Industries, Israel

DEAL VALUE ($ BILLIONS): 6.4


ANNOUNCED: July

BUYER, LOCATION: Taiyo Nippon Sanso, Japan

BUSINESS, LOCATION: Praxair Industrial gas business, Europe

DEAL VALUE ($ BILLIONS): 5.8


ANNOUNCED: July

BUYER, LOCATION: UPL Corp, India

BUSINESS, LOCATION: Arysta LifeScience, US

DEAL VALUE ($ BILLIONS): 4.2


Source:

PwC.

The most popular businesses to buy were in specialty chemicals, including some worth more than $5 billion—what PwC classifies as megadeals. AkzoNobel sold its specialty chemical business to the private equity firm Carlyle Group for $12.6 billion in order to focus on its core paint business. In another example, US-based International Flavors & Fragrances agreed to pay $6.4 billion for Israel’s Frutarom. Frutarom had itself acquired a long list of smaller flavors firms in recent years.

Years of M&A is having an impact on the market, PwC says. “Consolidation in the specialty chemicals industry has reduced the overall pool of larger, high-quality targets,” the firm notes. That has caused prices of businesses for sale to go up, particularly as private equity firms have also gained a taste for specialty chemical businesses.

Even sectors that are normally the purview of large, R&D-intensive chemical corporations are ripe for acquisitions these days, PwC says. They include nutrition ingredients, plastics compounding, coatings, adhesives, and specialty materials.

By the fourth quarter, trade disputes had put a damper on deal values, which were down 65% compared with the same quarter in 2017. But PwC anticipates upbeat deal activity this year as specialty chemical businesses continue to be popular with buyers. The specter of slowing economic growth will only fan the acquisition flames, PwC says, as companies look outside their current businesses to boost sales.

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