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With or Without Big Deals, The Chemicals Industry is Consolidating

The push towards getting hitched goes well beyond Dow/DuPont or Bayer/Monsanto mergers.

The push towards getting hitched goes well beyond Dow/DuPont or Bayer/Monsanto mergers.

According to recent analysis by PwC, a global consulting firm, several factors are driving chemical companies to tie the knot.

“In this low-growth environment, organic growth is non-existent,” Pam Schlosser, the U.S. Chemical Deal Leader at PwC says. “Even though there is more optimism and the economy and stock market are doing better, you’re still seeing very sluggish earnings reports.”

Schlosser says that the issue is global.

“There’s this whack-a-mole perspective — the EU is down but the U.S. is up. The U.S. is up but Asia is down, etc.,” she says.

A recent PwC report on Chemicals Industry trends for 2017 states: “With rare exceptions, chemicals companies can no longer depend on volume to drive growth…Pockets of potential growth exist in new materials, such as biopolymers…but they are still some time away from reaching scale.”

PwC’s report provides advice for companies looking to increase their profitability through improved performance. The firm’s main tips are:

Capture value over volume — Revamp customer offerings by differentiating service levels or adjusting prices.

Adopt next-generation digitization — Make the shift from being a “product seller” to a “solution provider” with digital upgrades. For example, applications that show how customers integrate products into their operations give chemicals companies the insights they need to proactively address customer needs.

Seek portfolio coherence — Companies sitting on the sidelines and watching the merger frenzy might have to prove to shareholders that they have coherent portfolios. For some, this might mean divesting or spinning off certain businesses.

And of course, jumping into a deal with another company can help turbocharge growth.

Unless some of the major pending deals start getting rejected by regulators, Schlosser says the merger craze isn’t likely to let up just yet.

“And now there appears to be more cross-border deals,” Schlosser notes. “There isn’t just localized consolidation, there’s global consolidation.”

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