- Nearly three-quarters have ‘significant’ cash available for investment;
- 84% expect to be involved in a merger or acquisition in the next two years;
- A third actively on the hunt for acquisition targets
In the face of escalating costs, stiffer competition, and a stuttering global economy, Europe’s chemical industry executives intend to use the significant cash on their balance sheets to pursue strategic acquisitions and new product development as a means of spurring company growth, say KPMG’s chemicals specialists.
According to KPMG’s ‘Global Chemicals Industry Outlook Survey,’ a total of 68 percent of European industry executives indicate that their companies have significant cash on the balance sheet , and more than a third (40 percent) say their companies’ cash positions have improved from last year.
“Recent years have seen a number of commentators speculate that the future of the European chemicals industry is under threat as a result of rising energy costs and increasing competition from low-cost suppliers in the emerging economies,” said Paul Harnick, global COO of KPMG’s Chemicals and Performance Technologies practice. “However, the good news is that Europe’s chemicals companies appear to be shrugging off any such concerns and are instead attempting to tackle the issue of growth head on.
“Certainly the improved cash positions at many of these companies will allow them to be more aggressive to drive growth and innovation – both organically and inorganically. We therefore predict an uptick in M&A over the next two years as organisations begin to put their money to work in order to gain that vital competitive edge.”
Investing in Growth
Fifty-eight percent of all European executives plan to increase capital spending over the next year, with the highest priority investment area being new products or services (36 percent). Furthermore, 84 percent of executives indicate that their companies are likely to be involved in some form of M&A activity in the next two years – up from 62 percent in KPMG’s 2011 survey – with around a third (32 percent) indicating that they are actively on the hunt for acquisitions.
Commenting on which assets are likely to top the acquisition shopping list, Paul Harnick added: “Large chemicals companies in Europe are on the look-out for opportunities to reorganise their portfolios to better suit these more straitened times. The top trump assets are therefore those speciality businesses which have high intellectual property value and which operate at high margins. Intrinsically, high technology businesses also have the magic ingredient of high barriers to entry, which makes them particularly attractive for those with cash to spend.
“The return of deal activity, particularly in Western European countries, could prove to be the light at the end of a very dark tunnel for the sector as a whole.”
Respondents to the survey also identified geographic expansion (32 percent) as a significant area of investment. As for where executives intend to deploy that capital over the next two years, domestic investment came out on top with 54 percent saying they are seeking to expand their operations within Europe, with China (50%) and the US (28%) also figuring strongly as potential investment locations.
Fragile economic fundamentals
Despite the strong focus on growth and expansion, the macroeconomic environment is far more of a worry for executives than this time last year. Indeed, a potential collapse of the Eurozone came out top in the list of those issues keeping European chemicals executives awake at night (46%) followed by questions over the sustainability of the US recovery (26%).
Paul Harnick said, “Executives in Europe are certainly more concerned about the state of the global economy than their counterparts in the US and Asia. Balancing potential global economic risks with the need to expand into new products and markets to capture growth will be the key to success.”
For a copy of the survey, please visit: www.kpmg.com/reaction
For further information, contact:
KPMG Corporate Communications
Tel: 0161 246 4623 / 07824 537963
About the KPMG Chemical Industry Outlook Survey
The KPMG survey was conducted in July 2012 and reflects the responses of 156 senior executives in the Chemical industry – 53 in the U.S., 50 in Europe, and 53 Asia-Pacific. Based on revenue in the most recent fiscal year, 22 percent of respondents work for institutions with annual revenues exceeding $10 billion, 35 percent with annual revenues in the $1 billion to $10 billion range, and 44 percent with revenues in the $100 million to $1 billion range.
About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.