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Tuesday, July 23, 2024

Total shareholder return generated by the acquisition of chemical companies

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The long-term trend makes M & A of chemical industry not only a means of growth, but also a means of security.

From 2014 to 2018, the chemical industry experienced a wave of M & A activities. This activity is in line with the M & a boom that occurs every decade in the industry. The demand for vertical integration (1980s), the low growth caused by the transfer of oil and gas capital from the chemical industry (1990s) and the growth of emerging markets (early 21st century) have stimulated the growth of M & A in the past decades.

The recent surge in M & A activity reflects the general trend in the industry. First of all, M & A is a response to the need to focus on pure business, so as to better serve those customers who expect to obtain more in-depth product expertise, and attract investors who pay more and more attention to pure business. In addition, M & A is the main contributor to the revenue growth of large companies. They use the complementary acquisition to enter new geographic markets, market segments, products and technology applications.

New and powerful competitors also make M & A a a sound defense strategy. As the growth of the liquid fuel market slows, oil and gas companies have turned their attention to the chemicals market – the biggest growth in oil demand from 2018 to 2035 will come from chemicals, not transportation and electricity. At the same time, state-owned enterprises in the Middle East and China have turned to the field of materials in order to enter the market and acquire technology and enhance their own capabilities.

M & A has always helped companies in the chemical industry create value. In fact, compared with general chemical companies, the total shareholder return (TSR) of large chemical companies pursuing large-scale M & A is more than 1.8%; those enterprises engaged in planned M & A create an additional 1.7% in TSR. In order to increase the possibility of creating high returns for shareholders, industry participants should build capacity at all stages of M & A. As the current trend of M & a boom will continue, chemical companies should establish unique capabilities at all stages of M & A, and continue to look for opportunities to better serve customers and grow.

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