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Catalysts in place for chemicals M&A rebound in the second half of 2024
Deal value and volume in the chemicals industry remained lower than the historical average in the first half of 2024. This was attributable to several factors including elevated interest rates, weak industrial demand, ongoing geopolitical tensions and increased regional conflicts. However, executives are gaining confidence that a global recession is less likely and that central banks will start cutting interest rates to stimulate growth later this year. We anticipate chemical M&A activity to rebound in the second half of 2024, as economic and political uncertainties ease in major countries. A renewed focus on domestic industrial policy and global supply chain realignment, coupled with increased private equity exits, will likely lead to more assets on the block, driving deal activity. Major recent developments include the following:
- More than 60 countries will hold governmental elections in 2024. This has the potential to impact regulations and policies and, in turn, chemical M&A activity.
- We anticipate increases in M&A and investments in countries that connect trading alliances, offer access to vital feedstocks and have fewer restrictions on foreign investment, commonly referred to as "friendshoring".
- The US is becoming a more lucrative destination for chemical M&A activity following the shift to reshoring, attractive economic incentives, advanced energy infrastructure and the advantage of access to key raw materials.
- The aging of private equity portfolio companies is expected to bring more assets to market. Companies may seize this opportunity to engage in transformative deals, consolidate market positions and capitalize on synergies and economies of scale.
- The ongoing dynamics of divesting noncore assets, optimizing portfolios, scrutinizing supply chains, decarbonizing operations, liquidating assets that aren’t ESG (environmental, social, and governance) friendly, and fulfilling sustainability obligations are expected to play a significant role in driving M&A activities.
Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.
How market conditions are impacting M&A strategy
Continued concerns around the Middle East conflict and potential escalations could disrupt commodity prices, demand and supply. Europe has become one of the most expensive places globally to produce petrochemicals, leading to import pressure and further compounding existing challenges stemming from reduced downstream demand and an oversupply issue. Cash-rich Middle East national oil companies (NOCs) and Southeast Asia oil corporates will continue to be active acquirers of downstream chemical assets, especially those assets with favorable ESG and sustainability characteristics. North America — and the US in particular — is becoming increasingly attractive for private equity firms and corporates due to a favorable regulatory environment and lower costs for raw material and energy.
“Despite muted chemical M&A activity in recent months, a sense of cautious optimism endures that a long-overdue rebound will materialize in the next few months as economic and political uncertainties ease.”
The bottom line
The chemical industry faced multiple headwinds in recent months and is operating in a transitional landscape. More companies are focused on innovation and business optimization, while divestment of non-core assets is funding these initiatives. The future of Chemicals M&A activity will be heavily influenced by the outcome of the government elections in major jurisdictions and any changes in central bank monetary policy.
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