Consolidation helps chemical companies to both vertically integrate their operations and expand into new markets. The late 2019 uptick in consolidation among chemical industry companies continued into the start of 2020. The global pandemic slowed this M&A activity, but in the near future, consolidation is likely to resume and may even accelerate once pandemic fears subside. Digital technologies are making it easier for some chemical companies to pursue this strategy. For more information on the digital transformation of the chemical industry, read Part 1 of our series on Trends in Chemical Transportation.
Consolidation in Bulk Liquid Transportation
For over a decade, chemical manufacturers have been acquiring small and medium-sized distributors with geographic and/or product expertise. The downstream acquisition provides access to new markets and puts control and consistency into the hands of the manufacturer. Leading this trend are companies such as Brenntag AG and Univar Solutions. These companies have achieved economies of scale, specialized sales channels, and evolved strong supply chain networks.
The chemical industry encompasses more-than 13,000 firms producing 70,000+ products (Chemical Spotlight). Smaller chemical manufacturers work with distributors to access markets and leverage economies of scale when internally they lack adequate volumes or capabilities. Distributors connect customers to suppliers and broker beneficial deals between these parties. Consolidation occurs when manufacturers acquire upstream suppliers or downstream distributors. The evolution of e-commerce websites and direct-to-consumer sales, as well as the need for companies to control on-time delivery while managing driver and equipment shortages, may reduce the value of distributors in the value chain and foster merger and acquisition activity unless distributors employ value add strategies (Schweller).
Impact of COVID-19 on Consolidation Trends
While US Chemical M&A activity had slowed in early 2019, it picked up momentum later in the year culminating with a mega-deal between DuPont and IFF. This trend was expected to continue through 2020 as companies divested non-core holdings and acquired investment capital in preparation for a gradual economic slowdown. As we now know, the forecasted gradual slowdown didn’t happen. The COVID-19 global pandemic triggered an abrupt decline in global economic activity. While most chemical manufacturing was considered essential, dramatic shifts in production and distribution occurred practically overnight, including the rapid need to increase medical supplies, hand sanitizer components, and testing reagents. The demand for oil, gas, and petroleum products declined so much that ships remained out to sea due to a lack of storage facilities and distribution capacity.
The May 19th, 2020 MarketWatch prepared by Comtex reported significant impacts to the global merger & acquisition (M&A) market due to COVID-19 (Understanding COVID-19’s Impact on Mergers and Acquisitions). The combined impacts from the pandemic which included: tighter cash flow, high uncertainty, and a shift in priorities to caring for personal and employee health, cancelled or postponed talks for approximately 50% of USA M&A negotiations. This was an abrupt change from the outlook that was forecasted in late 2019 for M&A activity in 2020.
Outlook for the Bulk Liquid Transportation Industry
Once the new normal returns, companies who emerge strong could see buying opportunities in companies which are barely getting by. The May 2020 acquisition by Huntsman of CVC Thermoset Specialties provides evidence that strategic M&A activity still holds value (Huntsman Corporation). The long-term need for economies of scale and improved control of distribution will continue and thus leading analysts are anticipating a return to M&A activity on the back-end of this pandemic.
Matlack Leasing, LLC, an expert in bulk liquid transportation, can help you navigate the ever-changing chemical industry. Matlack has chemical tank trailers and chemical transportation equipment designed to optimally move your chemical and bulk liquid products throughout the United States. Contact Matlack at 1-800-MATLACK today to work with a trusted leasing partner.
- “Chemical Spotlight.” Chemical Industry Spotlight | SelectUSA.gov, www.selectusa.gov/chemical-industry-united-states.
- Huntsman Corporation. “Huntsman Completes the Acquisition of CVC Thermoset Specialties.” PR Newswire: News Distribution, Targeting, and Monitoring, 18 May 2020, www.prnewswire.com/news-releases/huntsman-completes-the-acquisition-of-cvc-thermoset-specialties-301061107.html.
- Schweller, Dan, et al. “Global Chemical Mergers and Acquisitions Outlook.” Deloitte, 3 Feb. 2020, www2.deloitte.com/global/en/pages/energy-and-resources/articles/global-chemical-mergers-acquisition-outlook.html.
- “Understanding COVID-19’s Impact on Mergers and Acquisitions.” MarketWatch, MarketWatch, 19 May 2020, www.marketwatch.com/press-release/understanding-covid-19s-impact-on-mergers-and-acquisitions-2020-05-19.