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The pattern of global chemical M&A transactions has changed

Echemi 2021-07-22

Recently, as the global epidemic has eased, global chemical mergers and acquisitions have become active again. Compared with M&A transactions before the epidemic, the recent global chemical M&A transaction market presents the following new characteristics: developing countries, especially Southeast Asian companies are accelerating their pursuit of internationalization and actively participating in cross-border mergers and acquisitions; private equity companies actively and flexibly participating in chemical mergers and acquisitions Transactions: The non-chemical infrastructure of chemical companies is becoming a new sought-after asset in the chemical M&A transaction market.


Accelerated M&A in Southeast Asia

ACC predicts that US industrial production will increase by 5.5% in 2021 and 4.3% in 2022, while US industrial production will fall by 6.7% in 2020, with the decline mainly concentrated in the second quarter. U.S. light vehicle sales and housing starts are also expected to rebound, with totals of 17 million units and 1.59 million units this year, compared with 14.4 million units and 1.4 million units last year. ACC’s Chemical Activity Barometer (CAB) shows that the moving average for three consecutive months in June rose by 0.8%. Previously, the increase in May was 1.3%. CAB increased by 19.5% year-on-year due to the severe hit by the stoppage of the new crown pneumonia epidemic in the same period last year. Except for stock prices, the trends in most components of the index are positive. This includes resins related to construction, resins and chemicals used in durable goods, and plastic resins used in packaging, consumer goods, and institutional applications.


Dow Chemical predicted in early June that the pre-interest, tax, depreciation and amortization profit for the second quarter of 2021 was US$400 million to US$500 million higher than the agency’s forecast. Market participants believe that the market environment in 2022 is still conducive to the profitability of Dow Chemical. Laurence Alexander, an analyst at Jefferies Group in New York, said that petrochemical prices are expected to remain strong for at least the second quarter of 2022.


The JPMorgan Chase Global Manufacturing PMI Composite Index released by JPMorgan Chase and Esson Huamai on July 1 showed that the global manufacturing industry was still in a strong growth phase in June, with output, new orders and employment all increasing. The manufacturing PMI fell slightly to 55.5 in June, lower than the 11-year high of 56.0 set in May. Manufacturing output increased again in June, although the growth rate was the lowest in four months.


Private equity firms actively participate

Mennella said that recent private equity firms have shown more flexibility in conducting mergers and acquisitions. For example, the European private equity firm Ardian acquired 50% of the ANGUS chemical company from Golden Gate Capital of the United States, and Bain Capital and Cinven acquired the specialty materials business of the Lonza Group for 4.2 billion Swiss francs. In addition, on July 2nd, the private equity firm Black Diamond announced that it would buy the entire equity of the British chemical company Polynt-Reichhold held by Invest Industrial, another private equity firm, and provide the company’s existing shares through the issuance of 1.3 billion euros of bonds. Debt refinancing, once again completed a large number of mergers and acquisitions. Menella also said that these mergers and acquisitions show the recent activity of private equity companies in chemical mergers and acquisitions. Not only that, these transactions are obviously more flexible than transactions between traditional chemical groups.


The success of private equity firms in chemical mergers and acquisitions has attracted many new players into the field. Menella said: "Ten years ago, there were far fewer private equity companies specializing in chemical M&A transactions. Now there are many companies engaged in chemical M&A transactions, and some European private equity companies have entered the US chemical M&A market."


Many chemical companies also actively participate in the financing of private equity companies and provide private equity companies with industry knowledge and contacts. Mennella pointed out that, for example, Japan's Mitsubishi Group has both investment institutions and Mitsubishi Chemical Holdings, Japan's largest chemical company. Mitsubishi Group has long been a strategic partner and the largest original shareholder of One Rock Capital Partners. In March 2019, One Rock acquired Nexeo Solutions' plastic distribution business for US$640 million. In February 2020, the company acquired Innophos Holdings, a US specialty chemicals company, for US$932 million. In June 2021, the company acquired Eastman Chemical's rubber additives business for US$800 million. Mennella said that the cooperation between Mitsubishi and One Rock is similar to a symbiotic relationship, which is likely to become a future trend.


Non-chemical infrastructure is in demand

Menella said that the non-chemical infrastructure of large chemical companies is also very popular recently. This is a new situation. Chemical companies can use this to gain more opportunities to sell assets, which will bring new changes to corporate financing.


Recently, Dow Chemical obtained approximately US$1 billion in cash by selling rail and port assets in six North American regions to Watco and Vopak Industries. Dow divested this part of the assets nominally, but can still continue to use these infrastructures. Jim Fitling, CEO of The Dow Chemical Company, said in a statement that the transaction is part of an assessment of the Dow Chemical Company’s “non-product production assets” in an effort to develop its core business and release cash to repay debt. , You can also use cash for value-added opportunities in your core business. On July 1st of this year, Nova Chemical of Canada announced the sale of its ethylene storage and trading business to the US Midstream Corporation Enterprise Products Partnership, enabling it to focus on the core business of ethylene and polyethylene production. In this regard, Mennella said: “Chemical companies still have the opportunity to divest infrastructure assets, which can be transferred to infrastructure funds and other professional companies in the field, while chemical companies gain more money without affecting production order. More cash."

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