Lower demand and rising costs are driving consolidation in agrochemicals as executives seek to cut expenses by building scale.

The chemical industry mega-mergers set in motion over the past two years, chiefly in seeds and agricultural chemicals, are now racing to the finish line. Their completion will bring the world’s “Big Six” agrochemical companies – Germany’s BASF and Bayer; US firms Dow Chemical, DuPont, and Monsanto; and Swiss firm Syngenta – down to four. These will produce 70% of the world’s pesticides.

The wave started in 2015, with Dow and DuPont, the world’s fourth and fifth most valuable chemicals firms. Their $130 billion tie-up was the biggest yet for the industry, and seems to have had a domino effect: In 2016, agrochemicals giant Bayer agreed to merge with seed-maker Monsanto in a deal worth $66 billion. Also that year, China’s biggest-yet foreign acquisition came when ChemChina moved to acquire Syngenta for $43 billion.

All of the deals are expected to obtain regulatory approval. According to The Economist, the EU has already signed off on the Dow-DuPont and ChemChina-Syngenta deals. The Bayer-Monsanto deal is also expected to go through, analysts say.

Now the deal-making trend is unfolding in other areas of the chemical industry, particularly amongst specialty chemical manufacturers. American firm Huntsman and Clariant of Switzerland, both makers of additives for pesticides, have agreed to a $14 billion merger. PPG of America, which makes specialty paints and coatings, is bidding for rival paint-maker AkzoNobel of the Netherlands. Two industrial-gas firms, Germany’s Linde and US firm Praxair, have agreed to a $70 billion merger.

The factors driving consolidation include a significant slowdown in demand across all types of chemicals, says P.J. Juvekar of Citigroup. Last year sales grew by just 2%, down from an annual rate of 6-7% in the 2000s. Demand from China is especially low. At the same time, notes Kurt Bock, Chief Executive of BASF, the cost of developing and testing new chemicals is soaring. With longer and more costly development cycles, companies need more financial heft to keep development moving.

Adding to the momentum, regulators seem to be taking a more relaxed stance regarding competition concerns, as exemplified by ChemChina’s relatively swift purchase of Syngenta. More M&A activity in the global chemical sector is likely; and in particular, more Chinese firms may set their sights on Western chemical companies. Florian Budde of McKinsey believes the massive chemical deals currently in the offing signal the start of an even bigger wave.

This website uses cookies to ensure you get the best experience on our website. Learn more