Strategy: Mergers and acquisitions activity increased in 2014
After a few slow years, chemical deal-making lurched back into motion in 2014. The year also saw a return of large transactions, something that the industry hadn’t seen much of since before the financial crisis in 2008.
According to PricewaterhouseCoopers, a total of $61.8 billion in deals were announced worldwide during just the first nine months of 2014. This far exceeds the $43.8 billion in dea
ls revealed in all of 2013. Large transactions, such as Albemarle’s proposed $6.2 billion purchase of Rockwood Holdings, helped drive up the numbers, the consulting firm says.
U.S. buyers and sellers were involved in roughly one-third of the transactions. “This is not surprising, given that the U.S. economy appears to be rebounding,” PwC says. “This drove increased demand for end-use markets, such as automotive, construction, durable goods, and plastics, and the concomitant increase in demand for chemicals.”
The trend has been for chemical companies to stick to their knitting, with acquisitions designed to strengthen lines of business rather than try something new. For example, Merck KGaA is buying Sigma-Aldrich to amplify its Millipore laboratory supply and services unit. Koch Industries bought PetroLogistics to integrate its polypropylene businesses with propylene supply.
Sellers, conversely, have been looking to trim deadwood so they can better focus. Ashland wants to expand in specialty chemicals, so it sold its water treatment business to a private equity firm. BASF sought an exit from polystyrene, so it sold its remaining stake in Styrolution to partner Ineos.
Focusing on core competencies is sensible, but it isn’t the only strategy. The year brought a few deals struck with diversification in mind, notably Albemarle’s purchase of Rockwood.
Albemarle has been looking for a way into the lithium business since 2011, when it unveiled a technology to extract lithium from its brine-based bromine operations in Magnolia, Ark.
In Rockwood, it is getting a leading lithium chemicals business and a greater stake in the lithium-ion battery sector. This bet on electric vehicles, analysts observed when the deal was announced in July, will serve as a hedge against the company’s exposure to fossil fuels through its refinery catalyst business.