Why is the chemical industry a hotbed for M&A deals?

In the light of declining crude prices and a more competitive market, the chemical industry is relying on mergers and acquisition activities (M&A) for their growth and earning profits. Due to the opportunities for growth being insufficient in taking a completely organic route and having to go through various environmental checks and approvals, M&A is a better alternative as a growth avenue for the chemical industry. For smaller organizations, it’s a way through which they can either scale up through forming partnerships or get potential ways to exit through selling off. World-over, the chemical organizations scout for companies that can gauge the economic condition well enough to determine an increase in demand.

Chemical industry is one of the most essential industries in India. India is the third largest producer of chemicals in Asia and the eighth largest in the world, thus reiterating its importance in the Indian economy. The industry is linked to the most important sector in India’s economy which is the agriculture society along with agro-commodities, services and manufacturing. With diverse bases for manufacturing, the Indian chemicals industry produces high-class products.

Since the Indian chemical industry’s market is dominated by family run small or medium size firms, M&A deals are a hotbed for such companies who have financial , technological and managerial limitations. These smaller firms have an established presence in their localities and have a vast sense of knowledge about customer requirements. But due to their limitations, they are unable to compete with their competitors globally. However, through M&A, global companies approach these smaller firms to get an entry into the Indian market and in turn provide these firms with appropriate partnerships and their consolidation seeks to help both the parties involved. They also act as exit routes for those small firms that are barely managing to survive or blessing in disguise when they have hit a runway in their businesses.

M&A has converted the industry into a seller’s market, especially for smaller firms wherein the prices have increased substantially. Moreover, the sheer increase in the merger-of-equal deals both in quantity and size shows that the industry is moving towards an era of full-scale consolidation. Since 2010, activists’ led campaigns and their investors have become imperative in the chemical industry.

In the global market, M&A deals are the means by which the chemical industry aspires to stay relevant and in competition. These deals are used as a method to achieve growth targets and facilitate innovation. M&A is also a way by which the industry tends to change its strategies, thus making it a hotbed for such deals.