Jubal Industrial - Ibrahim El-Ghamdi
USD 791 billion worth of mergers and acquisitions in petrochemical sector

Future of mergers and acquisitions (M&A) in the global sector of petrochemical has become a promising one with total global deals amounting to USD 791 billion over the last ten years (2007-2017). North America topped the list of deals in the whole world amounting to USD 296 billion, Europe comes second with USD 230 billion, China comes third with USD 111 billion, Asia comes in the fifth place with USD 106 billion and the Middle East and Africa come in the 6th place with USD 22 billion while the rest of the world comes in the final place with US 26 billion.

In a report in this regard on the future of mergers and acquisitions in the Gulf, Analyst Thomas Ranges, key partner of AT Middle East Energy Research said: “Gulf Cooperation Council States’ chemical companies will certainly need to re-evaluate their strategies of mergers and acquisitions if they want to boost their final strategies with processes of mergers and acquisitions and make use of the several opportunities that await them.”

After a year on processes of global mergers and acquisitions in 2017, with a series of huge deals that were finally concluded, there is a sense of optimism among executive directors of petrochemical companies in 2018. This sense is expected the increase of activity level in the short term. Yet, the scene has remarkably changed because the upcoming wave of mergers and acquisitions plans looks much more challenging.

Although M&A activities in the Middle East remained very low in 2017, the matter was completely different at the world level.  Despite the fact that the number of concluded deals witnessed a narrow boom, the value of these deals rose up due to the closure of many huge international deals that were announced in previous years.  These gigantic deals bear fruits after lengthy operations.

As a result, pending deal negotiations fell by half with a USD billion deal of acquisition between Bayer-Monsanto companies. This is the only deal that remained pending

While the expectations take an upward trend in 2018, M&A seem completely different and increasingly complicated because communication channels are shrinking due to the small number of large deals in the presence of small and useless ones at high prices a matter which makes immediate targets more difficult to be achieved.

Prospects foresee the scarcity of signing the huge deals in 2019 in terms of value compared with previous years because there are no big imminent deals in sight like many of the deals raised by active investors

Majority of the mergers and acquisitions focused on the chemicals sector that constituted nearly 45% total value of deals, while less concentration was given to sectors of trade, distribution or petrochemical and basic chemicals. Specialized product segment is likely to witness further gains where actors face increasing pressure to maintain a strong position in the chemicals sectors in which they compete.

A study unveiled that majority of executive directors in the field of chemistry believe that the expectations are positive and world processes of M &A are likely to grow within the next year. About 61% of those directors expect an increase of M &A while 11% expect a decrease. The most interestingly, the regional viewpoint is more modest and pessimistic. For instance, in the Middle East region, 39% of directors are sure of increasing activities and 14% believe the decline is more likely.

M & A activity in the region has been relatively low for a number of years in addition to launching few huge deals on long intervals. There have been only a few high-value transactions over the past decade including the purchase of GE Plastic by SABIC with a total value amounting USD 11.6 billion more than ten years ago. There has recently been a joint venture between Saudi Aramco and Germany's specialty chemicals company LANXESS. Aramco shared LANXESS in the ownership of ARLANXEO for Petrochemical affiliated to LANXESS by 50 %. This deal amounted to USD 1.2 billion.

As a result Gulf States player lack experience to a certain extent compared to their counterparts in Europe, the United States and even in Asia. Thus, companies in the Middle East should increase and re-assess their own M & A strategies if they want to remain competitive and develop their own value chains in the end.

This coincides with the activeness of most European and American players in the processes of M&A in the recent years. They actively managed their portfolios and understood how to generate value through buying and selling. They also succeeded in developing strong M & A skills all over the world, while the situation is completely different in the Middle East region. The Middle East players should develop new strategies to go in line with their counterparts in Europe and the US.

The Gulf States players tend to increase the total value of their M&A from their own hydrocarbon resources and specialized chemical materials that strongly lead to focus on the development of portfolios of their products. This requires the approval of different business models. The Gulf players need access to upstream technologies and bring closer between customers and the international markets to make their sub-strategy of M&A works properly and professionally. 

The report also showed that 35% of the respondents believe that the lack of available targets is a key obstacle before mergers and acquisitions in the GCC countries. This prompts the smart players to continue to plan for the future, re-consider their own M & A strategies and accurately identify potential targets even if they are not currently available. Those players are in a dire need to be prepared as all major players around the world have a list of targeted companies. They should exert arduous efforts to outperform their peers in this vital domain.

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