The Role of Mergers and Acquisitions

Markus Aschauer, Christophe de Mahieu, Philip Eykerman, Cary A. Farha, Michael Graham, and Thomas Rothel 

An increase in the number of worldwide players in many chemical segments, new low cost entrants, and increasing opportunities for global price arbitrage have increased the pressure on chemical companies, particularly those with a heavy exposure to the commodity chemicals such as olefines, plastics, and fertilizers, which represent approximately one third of all chemical sales. 

Consolidation through mergers, acquisitions, and alliances can be an effective way to deal with these forces. Its benefits can be twofold cost reduction through synergies and economies of scale, and improvements in the structure and performance of an entire industry segment. 

Our experience indicates that the savings realized by mergers range from 4 to 9 percent of the acquired company s sales in commodity segments and from 8 to 17 

The benefits of consolidation can include superior capacity utilization, the sharing of best practice process improvements, the elimination of overlaps in the distribution system, and the use of geographically closer plants for sourcing. Research and development and sales and marketing expenses can also be cut back by eliminating duplications in operations. Some non-traditional players (e.g., financial investors) have been able to slash their sales, general and administration costs by as much as 40 percent on the back of consolidation moves. 

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