Chemicals: US Deals 2023 outlook
Chemicals M&A turns cautious amid global slowdown
Chemicals deal value and volume in 2022 declined from a multi-year high in 2021, driven by fears of a global economic slowdown increasingly weighing on the deals market. Concerns surrounding rising interest rates, the possibility of a recession and the Russia-Ukraine war are now deepening and starting to impact dealmaking activity. Despite near-term headwinds, chemicals companies with strong balance sheets are well-positioned to power a new M&A wave once uncertainties diminish and valuations become attractive — potentially by the second half of 2023.
Chemicals deals outlook
Tighter monetary policy implemented by the Federal Reserve and central banks globally is impacting the global markets. Chemicals M&A activity may continue moderately in the near term as companies evaluate impacts from macroeconomic and geopolitical uncertainties and reset their long-term strategies accordingly. Deal activity in North America will likely remain slower in the first half of 2023 due to the cost of capital and recession fears. US chemicals companies may quickly return to the deal market if the US economy proves to be resilient. Deal activity in Europe, however, will likely continue to be hampered in the colder months ahead, as margins are squeezed due to historically high energy costs due to natural gas shortages. Some European chemicals companies have already begun to idle or permanently shut down plants as a result of the ongoing energy crisis. In Asia, renewed COVID-19 lockdown measures in China will likely continue to stifle deal activity and impact the global chemicals supply and demand in 2023.
The passage of the Inflation Reduction Act of 2022 in the US may create incentives and subsidies for global chemicals companies with clean energy exposure. Chemicals companies may also begin exploring the idea of reshoring their manufacturing facilities to the US, where feedstocks and energy costs are relatively less costly, which could drive deal activity levels up and down the chemicals industry value chain. Given such long-term positive catalysts, the immediate challenges the industry is facing may turn out to be short-lived, and a speedy recovery of chemicals deal activity may come about by the second half of 2023.
Proactive portfolio management is key to value creation
An upcoming PwC study reports that active portfolio management — including actively embracing divestitures — can help companies improve their chances for value creation. Recent trends have shown this is especially true in the chemicals sector as chemicals companies undertake significant portfolio transformations that focus on investments in assets with higher growth, higher margin and lower cyclicality.
In this changing environment, companies can gain strategic advantage by reassessing their portfolios against their core strategy. Chemicals companies are divesting segments of their business that no longer align with the forward-looking corporate strategies of accumulating cash and funding future strategic acquisitions. As more chemicals companies proactively review their holdings through a lens focusing on assets with higher growth, higher margin and lower cyclicality, it’s likely the industry will experience more divestitures.
“Despite the near-term M&A headwinds, confidence remains in the potential for a new wave of M&A in the chemical sector by or in the second half of 2023.”
Related content
Follow us
