Chemical industry- growth plan during M&A

Due to the chemical industry experiencing a slowdown due to the decline of organic sales, many firms turned to M&A in order to achieve growth. A dearth in new opportunities coupled with a lack of new innovation or technology, M&A has been a medium through which growth can be achieved.

Deloitte predicted that in 2019 “M&A activity will pursue smaller, more focused portfolio rebalancing and that activity in this year will focus primarily on fertilizers rather than agricultural chemicals.” Despite the challenges facing the chemical industry leading to a push back in M&A deals due to high interest rates, growing trade tensions and decelerating economic growth- Deloitte still predicted a robust market for M&A in the industry. This has been linked to the increasing availability of cash on-hand for buyers, cheaper credit and the will to increase return of interest for investors.

For the chemical industry to thrive, the first step to be taken is a complete understanding of the actual potential of how M&A deals can be a catalyst for growth in the industry. In order to ensure that these M&A deals work towards the ultimate goal of achieving growth, three factors will play an important role:

  • First of all, it’s important to analyze and identify the consequences of combining the two businesses. These would include- how much each partner would save, similarities or overlaps in the products that they offer, the consumer market being served and the true potential of technology and research and development projects.
  • It’s imperative to make sure that the companies being merged are being served by the best managing strategies and team. To ensure this, integration programs serve as a means through which a holistic review can be done of both the merging parties.
  • One of the most essential steps is to make sure that the opportunities that arise as a result of the transition are addressed. This would include broadening of the geographical reach of the product, coming up with new product ideas and a proper analysis of how the merger can utilize the best potential from sides.

To ensure that the M&A deals lead to adequate growth- it’s important to establish the required leadership in place and also determining a comprehensive roadmap. Furthermore, a very key aspect to be recognized and acted upon would be to address the cultural differences of the two merging entities in order to ensure a long and successful partnership. Seeing South East Asian countries as a cultural fit and with countries in the region becoming a hotbed for M&A deals, the Indian chemical industry is increasingly looking to merge with companies of this region. With an increase in global demand, the industry has witnessed substantial growth and will continue to grow if the above mentioned points are followed.