Published November 2008
Anticipated structural shifts in the industry and recent, unforeseen, economic dislocations will dramatically alter the landscape for chemical merger and acquisition (M&A) activity over the next five years.
Industry shifts will include the surge of low-cost petrochemical production in the Middle East and a demand shift towards Asia, most notably China and India.
Western and Japanese producers exposed to commodity or petrochemical products must: overhaul their product portfolios to avoid competition with low-cost Mideast production; expand or acquire truly differentiated product offerings that protect margin; expand or acquire assets in Asia to capture emerging market growth; or form joint ventures or alliances with the (mostly state-owned) producers that have access to low-cost feedstock.
Emerging Asian and Middle Eastern producers, on the other hand, now have the financial resources and government backing to acquire businesses that would allow them to build global positions in key markets or acquire technology and know-how that enable them to expand beyond low-cost basic chemicals and intermediates.
The global economic crisis, initiated by the implosion of global credit markets, is likely to constrain capital at a time when industry conditions deteriorate and consolidation should accelerate. Capital constraints could exclude some from large-scale M&A, particularly leveraged buyers, while a possible global recession and sharper-than-expected industry downturn is likely to force companies to seek restructuring as they consolidate positions or exit unattractive businesses.
Also, stricter environmental regulation, most notably REACH and greenhouse gas (GHG) restrictions, could bring further pressure on Western producers, accelerating consolidation of the industry, and causing a creeping “deindustrialization of the West”.