BERLIN — (Marketwire) — 05/10/12 — Chemical companies, whether they focus on a single industry subsegment or offer a wide range of products, are reshaping themselves to meet the challenge posed by three powerful trends, according to a new report by The Boston Consulting Group. The report, „Maintaining M&A Momentum in Chemicals: A Perspective for 2012 and Beyond“ is being released today.
These trends — the breathtaking growth of emerging markets, the rise of low-cost producers, and the tight constraints on some raw-material supplies — are spurring chemical companies to action. They are reshaping their businesses to serve important customers, generate operating and cost-saving synergies, and meet their needs for key inputs. With their balance sheets in good shape and market enthusiasm for chemical-industry dealmaking remaining high, chemical companies are poised for an active year as they adapt to a fast-changing world.
„Asia and other emerging markets are the main source of the industry-s demand growth, and the industry must reorient itself to win the business of these key customers,“ said Udo Jong, a BCG senior partner and a coauthor of the report. „We believe that Western companies must expand their footprints in these regions to succeed in the environment now taking shape.“
The report examines these megatrends in detail and explores the kinds of deals and dealmakers most likely to succeed in the challenging new environment.
While the developed world-s share of demand for chemical products has declined steadily since 2006, demand in emerging markets has surged, surpassing developed markets in 2010. China, meanwhile, overtook the U.S. in 2011 as the world-s largest market for chemicals. If anything, the shift of demand to the East will accelerate in coming years: in absolute terms, fully half of chemical demand growth through 2030 is expected to come from Asia. And where demand goes, deals will surely follow.
At the same time, a new breed of low-cost rivals in Asia and the Middle East is coming to prominence, and established companies are responding. Many of these low-cost producers have developed world-scale, highly integrated greenfield sites that are designed to operate at lower cost levels than legacy assets in the West. Rather than compete on an uneven playing field, many Western companies are exiting commoditized businesses and shifting their portfolios toward downstream segments where innovation, application know-how, and customer intimacy can serve as key differentiators.
Steadily rising material costs are nothing new. But producers must be prepared for long-term shortages of some materials and must find new ways to defend their margins. M&A is one of several tools companies will use to adapt. The shale gas revolution in the U.S. is driving the industry to reconsider the U.S. as a production site for some petrochemical applications.
Despite continuing concerns over euro zone debt and the growth trajectory of the world economy, current conditions in the capital markets constitute an overall favorable climate for dealmaking in chemicals. Many potential acquirers have improved their financial positions, strengthening their balance sheets and boosting debt capacity by cutting costs, disposing of noncore assets, and paying off debt.
But it will take more than financial strength to succeed. Chemical companies should consider carefully whether they have a parenting advantage as the owner of each of their business units. What advantages, if any, does a business unit have under current ownership that other owners could not provide? „A company might want to dispose of even highly competitive and successful businesses if the company is not the optimal parent and has more attractive investment options,“ said André Kronimus, a BCG principal and a coauthor of the report.
Careful planning is also key to successful dealmaking in Asia. In BCG-s view, true localization is the single most important contributor to success in emerging markets, and, to win the localization game, Western companies will need to establish themselves as familiar and welcome presences on the scene. That will require acquisitions as well as organic investments.
In these circumstances, it is not necessarily deal size that matters but rather the acquisition of local know-how, capabilities, and business approaches that can be transferred to the existing business and applied across the product portfolio. The future for chemical companies is in the East. Today-s deals will determine whether that future is a bright one.
A copy of the report can be downloaded at .
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or .
The Boston Consulting Group (BCG) is a global management consulting firm and the world-s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 75 offices in 42 countries. For more information, please visit bcg.com.
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