22:08 PM | February 8, 2021 | Vincent Valk
The recovery in chemicals M&A activity that began in the third-quarter of 2020 continued into the fourth-quarter of the year, with activity remaining broadly consistent, according to CW data. On a sequential basis, announced deal volumes were up 6.0% in the fourth quarter, to 71. Total deal value, however, declined 4.8% sequentially to $21.7 billion.
On a year-on-year (YOY) basis, fourth-quarter volume was up 9.2%, while fourth-quarter value declined 59.7%. The year-ago quarter included the announcement of IFF’s $26.2-billion merger with DuPont’s nutrition and biosciences (N&B) business, which closed on 1 February 2021, and accounted for about 48.5% for the fourth-quarter of 2019’s announced deal value.
Fourth-quarter transaction activity points the roller-coaster ride that was 2020. The year’s busiest month was October, with 27 announced deals. This was more than double the figure for April, at the trough of the COVID-19 downturn, which saw only 12 announced deals.
Quantitative and qualitative indicators are pointing to a strong market in 2021. January of this year saw the largest number of announced deals since before the COVID-19 pandemic took hold, with 28. Companies are actively searching for transactions. “Over the last few months, we have been called by multiple business owners who received an inbound inquiry and would like our support in managing the response and negotiation process,” says Grace Matthews (Milwaukee, Wisconsin), an investment bank.
For the full-year 2019, the thrum of activity did continue after a second-quarter pause. The total number of announced M&A deals for full-year 2020 was 251, down 14.3% from 293 in 2019, according to CW data. In the second-quarter, that figure totaled 44, but it rebounded strongly in the third and fourth-quarters. April and May combined saw just 26 announced transactions – a remarkably slow pace of activity. But by the end of the year, deals had long since resumed, as the fourth-quarter data shows.
On a value basis, however, M&A activity did dip significantly in 2020. About $69.3 billion worth of chemicals M&A transactions were announced in 2020, down 67.2% from about $211.5 billion in 2019. Just one transaction valued at more than $5 billion was announced in 2020, compared with six such deals in 2019.
Such wild swings in total announced deal value are not unprecedented, however, and do not need a pandemic to occur. In 2017, for example, announced deal value fell 71.7% YOY, from $240.6 billion to $68.0 billion. This can happen after a year with a number of megadeals, as acquirers take time to digest new entities and lower-level portfolio reshuffling becomes the order of the day.
Still, the COVID-19 pandemic may have reinforced this dynamic. While overall activity came back strongly in the second-half of last year, there haven’t been many megadeals. This seems likely to continue, as 2021 has thus far been quiet on the megadeal front. “Although there are more megadeals to come, there has been a noticeable shift to smaller, more focused acquisitions and divestments,” says Balmoral Advisors (Chicago, Illinois), an investment bank. “Because of this, we expect the average transaction size to shrink in 2021, potentially leading to a banner year for the middle market.”
The World Petrochemical Conference will take place virtually 8-12 March 2021 and address the theme Chemical Renaissance: Building Resilience, Agility and Innovation in an Enhanced Global Role. IHS Markit and other industry experts will provide hundreds of attendees with the opportunity to get the most in-depth and comprehensive insights on all areas of interest to the chemical and petrochemical industry to help you best position yourself for success in this new world. Learn more