View
245
Download
0
Category
Preview:
Citation preview
How Will M&A Reshape The Competitive Landscape Of The
Petrochemical Industry?
April 2017
Galid Lahdahda Executive Director
Chemicals & Refining Group Standard Chartered Bank
2
Standard Chartered Bank – Here For Good
Over 160 Years Of Rich Banking Heritage
Headquartered in London, United Kingdom
Listed on LSE, HKSE, BSE, and NSE
Ranked top 35 among FTSE-100
Dedicated Chemicals & Refining Team
Part of wider Energy & Natural Resources Group
Track record of financing and advisory transactions across chemicals, refining, and fuel distribution segments
Deep industry knowledge, covering both regional and international players
Global coverage, with particular focus on Asia, Middle East, and Africa
Global Presence Across 68 Countries
3
Slowing Global Growth Has Impacted Demand And Energy Prices
Global GDP Growth Global Energy Prices (Indexed)
Sources: International Monetary Fund; Bloomberg; SCB Analysis
2010 2011 2012 2013 2014 2015 2016 2017
Brent Crude Henry Hub Natural Gas
Newcastle Thermal Coal
% Of 1 Jan 2010 Prices
(10%)
USD80.8 / mt
(32%)
USD52.8 / bbl
(43%)
USD3.2 / mmbtu
10.6%
6.6%
10.3%
7.6%
6.9%
4.8% 5.4%
3.1% 2.5%
1.6%
2.1% 1.9%
2010 2011 2012 2013 2014 2015 2016
China India ASEAN-5
Global U.S. E.U.
% Growth
4
Chemical M&A Deal Value Quintupled From 2012 Low
Sources: MergerMarket; SCB Analysis
Notes: Deal count inclusive of deals with undisclosed deal value
Global Chemical M&A Activity
Total Deal Count:
286 218 136 211 236 209 252 304 283 293
Deal Count With Deal Value More Than USD1 billion:
20 13 7 14 20 12 15 27 31 21
116
69
27
62
96
52 57
113
178
254
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Financial Buyer
Strategic Buyer
Deal Value In USD billion
5x increase in deal value
over 2012-16
5
2015 / 2016 Witnessed Series Of Record-Breaking Mega Deals Announced
Sources: MergerMarket; SCB Analysis
Mega Deals Over Last Decade
2015 2016 2016 2016 2007 2016 2008 2014 2007 2015
77
63
46 43
19 18 18 16 16 13
DuPont +Dow
Bayer +Monsanto
ChemChina+ Syngenta
Praxair +Linde
Access +Lyondell
Potash +Agrium
Dow + Rohm& Haas
Merck +SigmaAldrich
Akzo Nobel+ ICI
Air Liquide +Airgas
Completed
Pending
USD billion
2015 / 2016: four mega deals announced with
value more than USD40 billion
6
Mega Deals Look To Increase Scope And Unlock Value In Competitive, Slow
Growth Environment
Sources: Public Information; SCB Analysis
Buyer Target Deal Value
(USD billion) Rationale
77 Improving focus on business portfolio; expanding
product offerings with enhanced technology
Unlocking value with USD3 billion in synergies
63 Increasing scale and global reach; expanding product
offerings with enhanced technology
Unlocking value with USD1.5 billion in synergies
46 Enhancing China’s food security; building a global
presence; expanding product offerings with enhanced
technology
43 Expanding product offerings with enhanced technology
Unlocking value with USD1 billion in synergies
7
Transformational M&A Changes Chemicals Landscape And Ranking
Sources: Public Information; SCB Analysis
Notes: Revenue for Monsanto as of LTM Aug 2016; revenues for Mitsubishi Chemical and Airgas as of LTM Mar 2016; revenue for Sinopec as of 2015
Top 10 Chemical Companies By Revenue (2016)
73
66 64
50
35 32
29 26 26 25
DuP
on
t +
Dow
Baye
r +
Mo
nsan
to
BA
SF
Sin
op
ec
SA
BIC
Mitsu
bis
hi
Chem
ical
Pra
xair
+L
ind
e
Exxon
Mo
bil
Chem
ical
INE
OS
Air L
iqu
ide
+A
irg
as
Status Quo
Target
Buyer
Revenue in USD billion
1 2 3 4 5 6 7 8 9 10
Transformational deals altering landscape Original Ranking #
9
4
2
>10
>10
>10 10
>10
1
3
5 6 7 8
8 Sources: MergerMarket; SCB Analysis
Notes: Deal count inclusive of deals with undisclosed deal value
Intra-Regional Transactions Dominate M&A
Breakdown By Value (USD Billion)
For Period 2007 – 2016 Buyer Region
Europe North America Northeast Asia Others Total
Ta
rge
t R
eg
ion
Europe 15.0% 9.2% 5.5% 1.4% 31.1%
North America 14.3% 29.1% 0.7% 2.4% 46.5%
Northeast Asia 0.5% 0.4% 13.0% 0.2% 14.1%
Others 0.7% 1.0% 1.4% 5.1% 8.2%
Total 30.5% 39.7% 20.7% 9.0% 100.0%
Breakdown By Count
For Period 2007 – 2016 Buyer Region
Europe North America Northeast Asia Others Total
Ta
rge
t R
eg
ion
Europe 16.4% 4.8% 1.5% 2.3% 25.0%
North America 3.5% 16.1% 1.4% 1.3% 22.2%
Northeast Asia 1.5% 1.4% 30.3% 0.8% 33.9%
Others 2.8% 3.0% 2.4% 10.5% 18.8%
Total 24.2% 25.4% 35.6% 14.8% 100.0%
9
Chinese M&A Activity At All-time High In 2016
Sources: MergerMarket; SCB Analysis
Notes: Deal count inclusive of deals with undisclosed deal value
China’s Share Of Global Deal Count
China Deal Count:
26 28 60 91
China Deal Value (USD billion):
4 5 9 61
9% 13% 24%
31% 22%
24%
18%
20%
6% 5%
10%
9%
6%
9%
6%
8%
5%
5%
9%
5%
42% 38% 31%
21%
2007 2010 2013 2016
Others
U.K.
India
Germany
South Korea
Japan
U.S.
China
% Of Global Deal Count
10
ChemChina Has Been Spearheading Chinese M&A Wave, Focusing Mainly
On International Targets
Sources: Public Information; SCB Analysis
Value of acquisitions over last 5 years exceeds USD60 billion
Announced
Date Target Stake Description Country
Deal Value
(USD billion)
Jul 2016 40% Manufacturer of crop protection products, crop
enhancers, and seed treatments 1.4
Feb 2016 100% Manufacturer of crop protection products and seeds 46.0
Jan 2016 12% International trader of commodities NA
Jan 2016 100% Manufacturer of machinery for plastic production 1.0
Mar 2015 100% Manufacturer of tires 8.8
Jan 2011 100% Manufacturer of silicon, silicones, ferrosilicon,
foundry alloys, carbon materials, and microsilica 2.3
Jan 2011 60% Producer of crop protection products 2.5
11
What Has Triggered M&A Surge During 2015 And 2016?
Limited returns on organic investments due to low growth
Strengthened balance sheets
Sustained low borrowing costs
Tectonic shifts in feedstock costs
Ripple effect of competition pursuing targets
Portfolio management initiated by activist investors
12
M&A Is Key Instrument To Achieve Expedited Expansion Of Scale And
Scope
Inorganic Growth
Benefits
Faster reaction time to industry trends
Relatively higher returns in low growth industry
Value creation through synergies
Bypassing barriers for new markets and access to
new technologies
Sustaining relative industry position and
profitability
Immediate cash flow contribution
Risks
Poor quality / scarcity of targets
Over paying resulting from competition
Hidden liabilities
Regulatory constraints
Post-merger integration risks
Organic Growth
Benefits
Better control and flexibility over growth plans
Less disruption to ongoing business
Growth potentially at a lower cost
Higher return; development premium
Leading edge technology, tailored investment
Risks
Limited resources and reach
Slower build and growth rate
Longer time-to-market; delay to reaping cash flow
benefits
Cost overrun
13
Generally M&A Is Used As Tool To Grow Or Protect Value
Portfolio management geared towards growth, higher margins, and lower volatility
Growing market share or entering into new markets / segments
Sustaining relative industry position and profitability through defensive M&A
Securing access to feedstock and / or end-markets
Capture synergies – on both costs and revenues
Moving closer to customers
Enhancing capabilities – R&D, technology, operations
Protecting bargaining power by matching size of suppliers and offtakers
Monetising non-strategic positions and focusing on core
14
Both Operational And Financial Synergies Materially Move Meter On Value
Operational Synergies
Revenue Synergies
Higher pricing power as a result of increased
market share and customer base
Increased product offerings through cross-selling
strategies
Increased sale force efficiency
Growth acceleration through pursuing more
opportunities with more resources in hand
Cost Synergies
Effective sourcing of materials
Shared facilities and corporate functions
Improved utilisation of existing infrastructure
Better integration of facilities
Energy savings
Financial Synergies
Improved credit rating and / or lower cost of capital
for the combined entity
Improved capital allocation (e.g., merger of
company with excess capital with company
offering significant investment opportunities)
Reduced investment requirements for combined
entity
Lower tax base (e.g., potential losses carried
forward)
Lower tax residency
15
Trend To Move Towards Higher Value-Add Segments Via M&A
Feedstock End-Market
Sp
ec
ialt
y
Co
mm
od
ity
Cost-focused players who are
highly focused on feedstock
production (e.g., olefins,
polyolefins, aromatics)
Diversified players who, mostly
through M&A, are vertically
integrated from feedstock
production to meeting end-market
needs
Customer-focused players who are
highly attuned to end-market
needs (e.g., customisable
products)
Prevailing trend of players moving
towards higher value-add product
segments via portfolio management
16 Sources: FactSet; SCB Analysis
EV / EBITDA Of Top Chemical Companies By Segments
Investors Reward Specialty Companies With Higher Multiples
11.5x
7.9x
7.2x
3x
6x
9x
12x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Specialty Commodity Diversified
17
2015 / 2016 Tailwinds Expected To Prevail; Valuation And Overhang Of
Political Interventions Main Impediments
Limited returns on organic
investments due to low growth
Strengthened balance sheets
Tectonic shifts in feedstock
costs
Seeking access to advanced
technologies
Moving closer to end customers
2017 Drivers
Relatively high valuations
Feedstock price volatility
Politically-driven interventions
Economic volatility
2017 Impediments
18
THANK YOU
Disclaimer
These materials have been provided to You by Standard Chartered Bank (“SCB”) in connection with an actual or potential mandate or engagement and may not be disclosed or referred to (in whole or in
part) or used or relied upon for any other purpose other than as specifically agreed by written agreement with SCB. The information used in preparing these materials was obtained from or through You, Your
representatives or public sources. While SCB has taken reasonable care in preparing these materials, SCB has not independently verified the information contained in these materials. SCB, its affiliates and
their respective directors, officers or employees (the “SCB Group) assume no responsibility for and do not represent or warrant the completeness or accuracy of the information (whether written or oral)
including estimates, projections or forecasts (of future financial performance or otherwise) referred to in these materials or that may be supplied in connection with these materials (“Information”). SCB is
under no obligation to inform You or anyone about any change (whether or not known to SCB) to the Information. You must make Your own independent judgment with respect to any matter contained in
these materials. The SCB Group will not be responsible for any losses or damages which any person suffers or incurs as a result of relying upon or using these materials or as a result of any information
being omitted from these materials. These materials do not constitute an offer or commitment to arrange or underwrite any form of financing and do not create any legally binding obligations on the SCB
Group. The SCB Group does not owe any fiduciary or other duties to You or any other person and the SCB Group may be involved in other transactions and services with clients who may have conflicting
interests with You or any other person. If You do not accept any of the conditions above, you must immediately return these materials and any copies of it, otherwise, the retention of these materials by You
shall evidence Your acceptance of such conditions. If You execute an engagement letter with SCB for the transaction referred to in these materials, the provisions of such executed engagement letter shall
prevail over the conditions above, to the extent there are any inconsistencies.
SCB has adopted policies and guidelines designed to preserve the independence of its research analysts. SCB's policies prohibit employees from directly or indirectly offering a favourable research rating or
specific price target, or offering to change a research rating or price target, as consideration for or an inducement to obtain business or other compensation. SCB's policies prohibit research analysts from
being compensated for their involvement in corporate finance transactions.
Standard Chartered Bank is a firm authorized and regulated by the United Kingdom’s Financial Services Authority.
20 Sources: Bloomberg; SCB Analysis
Cost Of Funding (10-Year Yield)
Cost Of Funding Continues To Remain Relatively Low, Spurring M&A
Activity
3.4%
3.9%
5.8%
-
3%
6%
9%
12%
15%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
AA Rating BBB Rating BB Rating
Cost of funding has remained relatively low since late 2012
21
What Are Key Criteria For High Quality Target?
Established market position & leadership
High-growth end-markets
Sustained financial profitability
Distinctive value proposition
Complimentary product / geographical portfolio
Technology leadership and innovation
Competitive cost position
Experienced management team
HSSE track record
Recommended