A Deloitte Global report has stated that strong mergers and acquisitions (M&A) activity in the chemical sector will continue this year.

According to Deloitte Touche Tohmatsu's (Deloitte Global) 2016 global chemical industry mergers and acquisitions outlook, companies are showing more interest in acquisitions to grow and provide greater shareholder value.

Chemical sectors, such as fertilisers and agriculture chemicals, have already diversified this year, and industrial gases are also expected to see strong M&A activity..

Deloitte Global M&A chemicals and specialty materials sector leader Dan Schweller said: "Higher deal volumes are likely as companies use M&A as a tactic to deliver growth to counter challenging business conditions, which are expected to continue in these segments.

"Moving into 2016, these segments may also see transformational moves, especially after current portfolio adjustments and spin-offs underway are completed.

"Additionally, competitive pressure to build scale within all segments may drive further activity."

Tax-free spin-offs and divestitures are two of the major factors causing companies to change their portfolios.

Deloitte Global chemicals and specialty materials sector leader Duane Dickson said: "The spin-off momentum is likely to continue in 2016, given the often low tax basis in legacy businesses, resulting in tax-free spins delivering greater shareholder value than straight dispositions.

"Digital design and Advanced Manufacturing open up new frontiers for materials innovation and potentially threaten historical volumes in some commodities."

The report stated that M&A activities are expected to continue in the US while recovering economies, such as Brazil, might not witness any major chemical M&A activity.

However, foreign parties looking for long-term investments could still opt for Brazil due to it's lower valuations.

As companies reshuffle portfolios, M&A activities in Africa, Europe and the Middle East are also expected to continue.

Africa is likely to see consolidation activity for several reasons, including water shortage, population growth, and a growing middle class.

In the Asia Pacific region, agricultural chemicals, specialty chemicals, and fine chemicals are expected to be the top sectors for activity.

Japan is likely to witness growth in high-margin businesses related to high performance chemicals, especially life science chemicals.

India is expected to focus on commodity chemicals, with major transaction volumes expected in the specialty and agricultural chemicals sectors.

Image: This year, chemical sectors such as fertilisers and agriculture chemicals, diversified as well as industrial gases sectors to see rise in M&A activity. Photo: courtesy of meepoohfoto/ FreeDigitalPhotos.net

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