Chemicals M&A activity has steadily grown for the past few years, but in 2016, the industry is poised for its biggest year yet. A year after megadeals drove total deal value to its highest level since 2011, the biggest deals are even bigger this year, and the chemicals industry will likely shatter the previous record.

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Chemicals M&A Is Surging Chemicals M&A Is Surging

Led by megadeals—the merger of Dow Chemical and DuPont, which will create a combined company worth $130 billion—2016 is on track to be a record year for chemicals M&A, well beyond the 2011 industry record of $151 billion and possibly even twice as high as 2015 levels.

The 2016 surge mirrors trends in 2015, when chemicals M&A deal value increased for the fourth year in a row to $110 billion, an increase of more than 30 percent from 2014.

The 2016 Chemicals Executive M&A Report highlights several other key trends in chemicals M&A:

  • Chemical conglomerates are challenging old models. The Dow-DuPont merger, and its subsequent separation into three distinct, focused entities, is the most significant example of chemical conglomerates' continued focus on pursuing scale and portfolio coherence.
  • Five factors will drive future deal activity. The size of future deal activity will depend on five things: 
    • Limited returns on organic growth options. To sustain high valuations, chemicals companies must increase earnings—difficult to achieve purely organically.
    • Lower oil prices. The plunge in oil prices has impacted chemical companies both positively (for example, for naphtha-based petrochemical players) and negatively (for example, for oil field chemicals players).
    • Portfolio activities. Chemical companies are aggressively re-evaluating their portfolios and divesting non-core assets.
    • Activist investors. The number of activist investors is increasing, a trend expected to continue.
    • Favorable feedstock prices. North America’s shale revolution has given U.S. chemical producers significant advantages over Western European players. Their favorable position will likely remain through at least 2020.
  • North America leads the M&A charge. Spurred by the Dow-DuPont deal and others, chemicals executives believe it will be the fastest-growing region for deal volume in 2016. Meanwhile, China as well as other Asian players will continue to take a more prominent role in M&A as they seek to grow and add capabilities.

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In this interview with A.T. Kearney, Samuel Feinstein, who leads chemicals industry activity for the private-equity firm Apollo, discusses the outlook for M&A and his company's recent moves.

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