Analysis: COVID 19 accelerates consolidation of different chemical markets
COVID-19 will drive consolidation in selected chemical industries. This is the result of a recent study by the strategy consulting agency EY-Parthenon.
Particularly in the fertiliser, plastics processing and paints and coatings sectors, pressure is growing on companies to position themselves competitively. After peaking in 2019, M&A activities in the chemicals sector had declined significantly in the first half of 2020 due to Corona, and there had hardly been any major transactions. The number and value of smaller takeovers were also significantly lower. The second half of the year promises to become more active in some areas.
Consolidation in the paint and coatings segment
“In the fertiliser, plastics processing and paints and coatings segments in particular, the signs are pointing towards consolidation,” said Dr. Otto Schulz, Managing Partner and Head of the Chemicals Practice at EY-Parthenon. For fertiliser manufacturers and plastics processors, the low level of profitability, the low industry concentration and the high level of indebtedness point to increased pressure for consolidation.
The comparatively low industry concentration in the above-mentioned segments is also an important driver for M&A activities: “The comparatively low antitrust hurdles and the high competitive pressure make company takeovers much more attractive here,” Schulz continued. The strategy consultancy also expects consolidation to accelerate in the paint and coatings segment. The slump in demand from key automotive customers is increasing the pressure on suppliers to seek more cost-effective solutions.
According to research by EY-Parthenon, the following factors determine the probability of a takeover: high price volatility, domestic market with high investor protection, small company size, low valuations, low profitability, high level of debt, and low liquidity (in decreasing order).
