Global

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  • Industry: Chemicals & Performance Technologies
  • Type: Publication series
  • Date: 3/13/2014

Portfolio Rationalization Accelerates in 2014 

Portfolio Rationalization
During the global recession, the chemical industry faced volume declines that reached 30 to 60 percent or more,1 especially in developed economies.

Many chemical companies responded by initiating job cuts, released warnings of reduced profits, and began the painful but necessary task of divesting assets to reduce costs and gain liquidity during those troubled times. For those companies that made the hard decisions, those actions enabled them to resist calls for price cuts, improve their competitive advantage, and even become key players in certain markets.2


As the economy improves, rationalization has also become a favorite strategy for many chemical companies to divest their commodity-based assets and shift toward higher-margin specialties. In a recent KPMG Global Diversified Industrials survey, four out of 10 executives stated they plan to exit non-core businesses or product lines in the next two years.3
Companies considering a divestiture should proceed with prudent and careful analysis, recognizing the unique and sometimes unforeseen challenges involved in selling an asset.


Delivering portfolio value

Although rationalization is sometimes considered only in terms of divestiture, the process is really about delivering optimal value to the portfolio. Accordingly, management should consider any of the five options available for asset rationalization: buying the asset, selling it, fixing it, entering into partnerships or closing the business.


In addition, answers to the following questions can help management maintain a strategic direction during the rationalization process as they look to define which business they should be in:


  1. Who is the best owner for the asset?
  2. What about the asset’s market?
  3. Does the company have the time, resources and expertise to successfully undertake a transaction?
  4. Will our new portfolio fully support our company strategy?
  5. What will we do with the income from the sale?

Divestment considerations

Unlocking the value from non-core assets is quite possibly one of the biggest challenges faced by chemical companies that want to keep pace with global trends in the industry. Once the decision is made to exit a non-core business or part of a business then the focus turns to maximizing the value that can be derived from these assets which no longer fit with overall strategy


Properly planned and executed divestitures can maximize value through the price achieved, the capital freed up to be used more efficiently elsewhere and the distraction it removes.


Divestments take longer than acquisitions, with extensive assessments and preparation required at the beginning to ensure the option chosen is right and once the process is launched it is efficient and credible.


Conclusion

Active portfolio management including divestitures is a powerful tool for addressing economic crises, but it should also be a part of a company’s ongoing strategy. A portfolio rationalization should be done at least once if not twice a year, factoring in recent shifts in the business landscape, regulatory developments, actions by competitors and adjustments in company business goals and requirements. Combined with other strategies, rationalization will help chemical companies maintain a competitive advantage in today’s ever-changing markets.

 

 

If you have any questions, please contact:

 

Marc Summers

+44 161 2464336

 


1Volumes Down, Spirits Up, Chemical Logistics, September 2009. See also The Future of the European Chemical Industry, KPMG, 2010

2Market outlook: Global chemical growth to be driven by the US, Asia, ICIS Chemical Business, October 18, 2013

32014 M&A Outlook Survey Report: M&A expected to rebound in 2014, KPMG, 2013

 

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