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M&A: the way ahead?

Posted 07/04/2011 by KatieJ

Is the European chemical sector about to enter another round of consolidation? Is the announcement earlier this week that Belgian chemical group Solvay is to acquire and merge with French chemical major Rhodia just the first of many mergers and acquisitions within Europe?

The last major round of consolidation in the European chemical sector took place a couple of decades or so ago in response to a perceived threat from the Middle East, where a frantic building spree saw petrochemical plants being built on green field, or rather desert sand, sites across the region. Where was the output from these plants with their cheap crude oil and gas feedstocks going to go?

The belief in Europe, and also the US, which was also then enjoying cheap gas feedstocks in its various Gulf Coast petrochemical facilities, was that this new source of chemicals would displace existing producers in their export markets, mainly in Asia. Did it happen?

Well yes, to a degree, but Middle East production also came to Europe, putting producers there under pressure and the result was a consolidation in the industry the like of which had not been seen before. A number of big names disappeared while a whole series of new names appeared.

So are we about to see the same this all over again?

That seems unlikely as the global marketplace is much more highly developed than it was back then. And, as Solvay and Rhodia point out, some 40% of their combined current business comes from emerging markets. The one thing that hasn’t changed is that Europe still doesn’t have access to cheap, or rather cheaper, feedstocks, compared with other regions of the world. Even the US Gulf Coast isn’t the home of cheap feedstocks anymore.

Perhaps this time the consolidation will be driven by intellectual property? It has consistently been said that Europe will always be able to compete in global chemical markets on the basis of its skills, knowledge and expertise; innovation will always be its key competitive advantage.

Perhaps, however, there is a growing realisation that even this competitive advantage is now coming under attack from the newly developed intellectual bases that are being established in emerging countries like China and India, as well as Latin America and elsewhere?

Perhaps companies in the developed world are beginning to see a situation in which only by collaborating, sharing and even merging their knowledge bases will they be able to hang on to what has previously been seen as their jewel in the crown – their ability to innovate their way out of tough world market situations?

Big Pharma has already been through this kind of consolidation only to realise that what is really needed is the input from its smaller more nimble siblings in the biotech and other sectors. Will Big Chems have to go through the same process to appreciate the role of the SMEs that it has either tried to gobble up with mixed results or ignored as too highly specialised? Only time will tell.

Neil Eisberg - Editor

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