Ante una economía global de perspectivas inciertas, las empresas químicas han estado luchando por crear valor y hacer crecer sus ingresos. Débiles economías son economías ahorrativas y los consumidores se han vuelto más interesados en el precio de un producto que sus características. Por lo tanto, se hace más difícil el vender productos nuevos, innovadores, a menos que el valor-en-uso total representa un ahorro en costos significativo.
Faced with a lackluster global economy, chemical companies have been struggling to create value and grow revenue. Weak economies are thrifty economies and consumers have become more interested in value rather than features. Therefore, it becomes harder to sell new, innovative products, unless the total value-in-use represents a significant cost savings.
This headwind is pushing back on product value creation in chemical companies’ customer industries, products and, ultimately, their operating results and share price performance (see figure below). As such, three areas are coming into focus:
- Acquisitions for circling customers, selling more products and services to the same customers and gaining “selling economies.”
- Cost reduction through scale and efficiency across operations.
- Value purchases encouraged by exchange rates and varying regional monetary conditions (e.g., movement of funds from China to Europe).
In addition, activist shareholders are adding pressure for mergers and divestments, particularly in the US, with the aim of creating efficiencies and bolstering shareholder value.
This environment differs significantly from the focus on incremental M&A and organic growth for value-added products and services of the preceding few years, as described in a past blog, although the trend still continues.
The merger of Dow and DuPont is the largest result of this business environment to date. ChemChina’s bid for Syngenta (agricultural chemicals company) and KraussMaffei (machinery manufacturer) are additional examples, as well as AkzoNobel’s agreement to buy BASF’s industrial coatings business. More will likely follow.
It’s worth reviewing in more detail the Dow-DuPont merger, which will create a gigantic new company—DowDuPont—with a market capitalization of about US$130 billion that will then be split into three companies, focusing on the businesses of agriculture (US$19bn in revenue), materials (US$51bn) and specialties (US$13bn)1. The merger in itself indicates a greater value to be found in asset consolidation, creating greater economies of scale and customer coverage, as opposed to cross business synergies (an important value mentioned in a past blog).
Increasing the crop circle
This biggest competitive impact of the Dow-DuPont merger, by far, will be in the agriculture business. DowDuPont will become the world’s largest seeds and crop protection player, closely followed by the new emerging market player, ChemChina, via its announced acquisition of Syngenta (US$15bn in revenue). Syngenta adds to ChemChina’s existing ADAMA Agricultural Solutions generics business (US$3bn).
DowDuPont will have other strengths beyond size. Traditionally, DuPont has had a strong focus on seeds, while Dow has focused on crop protection. As a result, the combined company will be the only large player with a balanced portfolio encompassing both seeds and crop protection, putting it in a strong position to provide integrated offerings encompassing both products. In addition, DowDuPont will be more regionally balanced than its key competitors, with a strong footprint in Europe and Asia. This balance will put DowDuPont in an improved position to offset regional challenges, such as the ongoing subdued corn and soybean markets.
Materials magnification
In the materials business, DowDuPont will strengthen its existing position as the second-largest company in the segment, with the merger creating a US$51bn organization, compared to BASF’s US$66bn materials business. However, the new organization’s overall impact on the market may not change as much as it will in agricultural chemicals, since DuPont is only contributing 12% to the new business.
Except for in low-density polyethylene (LDPE), where DowDuPont will increase its position, there is little overlap in the companies´ petrochemical portfolio. However, overlaps in the acrylates businesses provide production synergies and cross selling opportunities, resulting in an improved position to sell an enlarged and more sophisticated range of products to the packaging, construction and automotive markets. Here, in these “end market oriented” spaces, there may be pressure on other competitors, not necessarily with like molecular products (i.e., one packaging material or method can be replaced with another), to consider consolidation as well.
Specialties with clout in electronic chemicals
DowDuPont’s specialty products business will have similar dynamics as the materials business—that is, the merger may not dramatically change market dynamics in this area. Here, the lion’s share of the portfolio comes from DuPont, with Dow contributing just US$2bn to the new US$13bn business.
In the electronic chemicals portion of specialties, however, the deal does represent some overlap. The merger combines DuPont’s US$2.4bn business with Dow’s US$2.1bn business, giving the new organization an almost 20 percent market share in the highly segmented electronic chemicals market. That makes the company the new market leader in the targeted electronic chemicals market.
DowDuPont’s specialties business will have its greatest competitive impact in the Asia Pacific region, which represents 60 percent of the global electronic chemicals market. In addition to its increased size, the new company will also benefit from Dow’s earlier acquisition of Rohm and Haas, which had a strong innovation position in the region. DowDuPont will represent further competition to Japanese chemical companies involved in electronic chemicals, which tend to be strong in the region.
Preparing for the next wave
Weak market growth, due to poor global economic performance, is highlighting the need to re-scale (i.e., consolidate) assets and reduce costs. Over the past two decades, product innovation-driven chemical companies have become more end market oriented by focusing on serving those markets through basic R&D, applications development and multiple, selective smaller scale acquisitions. Therefore, although further consolidation is likely, it will not necessarily be for pure “product” rationalization, but rather for enhancing presence in customer markets, at scale and with efficiency.
In this current marketplace setting, companies must ask themselves the following questions:
- Are you slipping in high level financial measures (i.e., return on sales) versus peers over time? By the way, weakness in these measures will be the first attraction for activist investors.
- Which areas can have the greatest impact on “moving the needle” on your financials? Typically, there are many areas that can be improved with a low level of effort/cost.
- Are your competitors encircling your customer markets? Have they been selling more or different products and services to customers? Using different selling methods? Employing new tools (e.g., digital methods) to increase “customer stickiness”?
Companies should be addressing these questions to stay ahead of today’s market and competitive changes.
Fuente: http://www.accenture.com
