China emerges as player in chem­i­cal M&A

The Pak Banker - - 6BUSINESS -

Faced with a ma­tur­ing do­mes­tic mar­ket that will likely grow at a more mea­sured pace, China's chem­i­cal com­pa­nies could con­tinue to be ma­jor par­tic­i­pants in the in­dus­try's global mergerand-ac­qui­si­tion (M&A) scene, ac­cord­ing to a new re­port from A.T. Kear­ney.

While North Amer­ica is the largest mar­ket for chem­i­cal M&A ac­tiv­ity, China is a close se­cond, Kear­ney, a busi­ness man­age­ment con­sul­tancy, said in a re­port re­leased on Tues­day.

"Over the last 10 to 15 years, China has evolved into a ma­jor M&A player," Li­nus Hilde­brandt, a Kear­ney prin­ci­pal for Asia Pa­cific, told China Daily. "Chi­nese com­pa­nies will be on the hunt for tar­gets with world-class tech­nol­ogy in ma­ture mar­kets like Europe."

The Kear­ney re­port said that China has be­come one of the top ac­quir­ing coun­tries, grow­ing from 4 per­cent of vol­ume in 2002 to 21 per­cent in 2015, just be­hind the US, with 22 per­cent. South Korea's share grew from 2 per­cent to 6 per­cent in the same pe­riod.

Two re­cent deals sym­bol­ize the Chi­nese as­cent on the chem­i­cal takeover stage, ac­cord­ing to Hilde­brandt. In 2015, China Na­tional Chem­i­cal Corp (or ChemChina) agreed to buy into Italy's Pirelli SpA in a $7.7 bil­lion ac­qui­si­tion.

The pur­chase will give ChemChina's tire-mak­ing divi­sion, China Na­tional Tire & Rubber, Pirelli's pre­mium-tire tech­nol­ogy and more ac­cess to the huge Chi­nese mar­ket for the Ital­ian brand.

Last month, China Na­tional Chem­i­cal un­veiled a nearly $43 bil­lion of­fer for Swiss seed and pes­ti­cide com­pany Syn­genta AG to help trans­form it into a lead­ing sup­plier of agro­chem­i­cals and pes­ti­cides.

Up un­til th­ese pur­chases, Chi­nese ac­qui­si­tions had been on the small- or mid-size level, Hilde­brandt said. A few weeks be­fore the Syn­genta deal, ChemChina bought Ger­man in­dus­trial ma­chin­ery maker KraussMaf­fei Group for about $1 bil­lion.

Hilde­brandt said the Chi­nese com­pa­nies have de­vel­oped a model for over­seas ac­qui­si­tions that will likely be used to in­te­grate Pirelli and Syn­genta.

"China gen­er­ally keeps the ex­ist­ing man­age­ment and al­lows the com­pa­nies to op­er­ate in­de­pen­dently," he said. "They are build­ing upon their ex­pe­ri­ence with smaller tar­gets. It's not so much a takeover but more of a port­fo­lio ap­proach to man­age­ment."

Kear­ney's fifth an­nual Chem­i­cals Ex­ec­u­tive M&A Re­port noted that global chem­i­cal M&A deal val­ues rose by 30 per­cent last year to $110 bil­lion, and is pre­dict­ing an all-time record spike in 2016.

With two mega-deals al­ready an­nounced - Dow Chem­i­cal Co and E.I. DuPont de Ne­mours & Co's $130 mil­lion merger and ChemChina's bid for Syn­genta - and po­ten­tial large new trans­ac­tions gen­er­ated by emerg­ing-mar­ket play­ers, to­tal chem­i­cal M&A val­ues for 2016 could dou­ble last year's level, Kear­ney said.

Hilde­brandt cited sev­eral fac­tors for the ris­ing level of chem­i­cal M&A: lim­ited or­ganic growth op­tions, fa­vor­able feed­stock prices, lower oil prices and port­fo­lio op­ti­miza­tion.

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