Cover story On the way up? M&A market nears inflection point Chemicals M&A market stalled out in 2023 after an extended strong run. Announced deal value fell 14.2% last year, to about $70 billion, according to Chemical Week data. Total number of announced transactions fell 5.4% in 2023, to 264; not a dramatic decrease, but the smallest figure since 2016 outside of 2020, when the pandemic ground dealmaking to a halt for several months. T ↘ Vincent Valk he chemical M&A market slowed last year as strong headwinds from higher interest rates and weak performance chilled deal activity. For private equity firms, “the sheer velocity of the interest rate shock was something few … had ever experienced, and the impact on value has driven a wedge between buyers and sellers,” according to a report by Bain & Co. (Boston), a consultancy. Interest rate increases by the US Federal Reserve in 2022 and 2023 proceeded “at the fastest pace since the 1980s,” Bain added, contributing to uncertainty. But while rising interest rates have been a negative for M&A across the board, for chemicals it was broader uncertainty about the industry’s performance that further dragged down activity. Many producers saw earnings whipsaw in late 2022 and 2023 due to inventory destocking, and the European industry continues to be hampered by high energy costs and tepid growth. Last year saw a “not-so-perfect storm of earnings pressure on businesses, the impact of energy prices in Europe rippling through, and a slowdown in China,” said Ranga Covindassamy, managing director with Evercore (New York), an investment bank, said during a Chemical Marketing & Econom-ics (CM&E) Group webinar in early March. M&A transactions were hampered in 2023 more by “the underperformance of busi-nesses, and sellers not wanting to sell at the bottom,” said John Televantos, partner with Arsenal Capital (New York), a private equity firm. “Anyone who could, said, let’s wait a year and see if there’s an improvement.” The challenging environment had a chilling effect on possible sellers, which may not necessarily be reflected in asset valuations. “If everyone who wanted to transact did [last year], you would’ve seen a huge decline in asset values,” said Anthony Giorgio, chemweek.com March 25–April 1, 2024 | Chemical Week | 19
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