M&A in 2016 at Ten Year High
It has been found that last year, the volume of M&As in the chemical industry was the largest in 10 years. It is said that the chemical industry is a crossroads in its growth due to the creation of new markets through the development of biotechnology (BT) and information technology (IT).
Samjong KPMG announced on July 19 that it published an industry trend report under the theme of ‘Chemical Industry (2012 – 2016) in Terms of M&A’. According to the report, the total number of M&A deals in the chemical industry in 2016 stood at 824 on the disclosure date, and the transaction volume hit 327 billion dollars. This is the largest in 10 years.
Chemical companies focused on M&As to preempt new future growth engine technology and expand market shares, the report said. In addition, cost savings due to low oil prices over the past two years increased cash holdings of chemical companies.
Cross-border M&A deals in the chemical industry in 2016 amounted to 364 and domestic M&A deals to 460. Cross-border M&A deals accounted for 44% of total M&A deals.
“The increase in cross-border M&A was attributable to increases in overseas market shares of emerging chemical companies due to their expansion, a cost lessening by economies of scale, and restructurings by competitive foreign companies,” the report said. “Cross-border M&As were more common among chemical companies of the United States, Germany and Japan, while those of China and Korea had higher percentages of domestic M&As.”
Since 2014, there has been a big increase in cross-industry M&A deals in the chemical industry, but M&A deals between chemical companies have been on a steady decline. Among M&As involving chemical companies cut in 2016, 627 M&A deals were made between heterogeneous industries, and only 197 M&A deals were cut between chemical companies. This indicated recent rapid convergence between the chemical industry and other industries.
Mega deals amounting to over US$1 billion were made in bio-related fields. Six of the top 10 mega-deals in 2016 were the takeover of biotech-related companies.
In particular, the chemical industry is concentrating its attention on the green bio (agricultural and food-related bio-industry) and red-bio (medical and pharmaceutical bio-industry) markets. Among major M&A deals in the chemical industry in 2016, Bayer’s acquisition of Monsanto, ChemChina’s takeover of Syngenta, Portash’s acquisition of Agrium, and LG Chem’s acquisition of Farm Hannong are interpreted as strategies for making a full-scale foray into the green bio market.
Fuji Film’s acquisition of Wako Pure Chemical Industries and LG Chem’s acquisition of LG Life Science can be called good examples of invasion into the red biotech industry.
“In the chemical industry, there is intensifying competition for initiatives to preoccupy new material development and promising future business areas and build stabler business portfolios,” Koh Byung-jun, a managing director of M&As in the chemical industry at Samjong KPMG.