Since Dow Chemical’s acquisition of DuPont a year and a half ago, there has been an influx of M&A activity in the chemical industry. In 2016, deals to buy chemical companies that were announced or completed that year had an aggregate value of $263.7 billion, up 33.3% from 2015. The chemical industry has struggled to achieve strong demand since the 2010 recession, so the M&A activity is changing the dynamics of the entire industry. Due to weak demand, chemical companies are looking to purchase rival companies in a bid to reduce costs and drive up revenues, which will ultimately provide better contracts with both chemical suppliers and chemical customers.

Cutting costs is a major “deal driver” in the chemical industry, which has also lead to a spike in collaboration. For example, China has gone from importing chemicals to exporting them, which has caused commodity chemicals prices to fall, prompting more consolidation for greater profits. Another driver is the industry’s need to match its suppliers (i.e., oil and gas) and customers (i.e., automotive, pharmaceutical), which include industries that tend to have greater consolidation. By increasing consolidation in the chemical industry, chemical companies carry greater weight through the diversity of their commodities and services, and can therefore negotiate better deals with their customers and suppliers.

Notable deals within the last year and a half include ChemChina’s $43 billion M&A proposal to buy Syngenta last February and Bayer’s purchase of Monsanto for $66 billion in fall 2016.

Source: Financial Times

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