Chemicals regulation REACH might contribute to resumption of M&A dynamics

The result could be the streamlining of many portfolios, as well as additional transactions, particularly in the SME area and cross-border-wise.

REACH challenges most of all the buyside in an M&A process

For the potential buyer, it is of utmost importance to know whether the target is a manufacturer, importer or downstream user. The buyer candidates - both corporate and financial buyers - are in a precarious situation in this respect. The lack of transparency that still exists with regard to the regulation and, above all, its implementation, leaves virtually no room for valid statements on the authorization prospects of a specific substance. It has to be assumed that this uncertainty might be instrumentalized in negotiations to push purchase prices down. A strategically oriented investor identifying substances in a target portfolio with a good chance of success for registration could also gain regulatory and financial advantages from an acquisition of that company.

Timing plays a crucial role on the sellside

Sellers planning to dispose of REACH-affected parts of their portfolio should act quickly in order not to be exposed to general markdown claims raised on the buyside. Consequently, for strategic portfolio planning it will be necessary on the buyside to gain clarity at an early date about which substances might drop out of the supply chain. Experts assume that more than 10 percent of all substances in the known chemicals landscape will disappear and up to 50 percent of all formulations and products will have to be modified.

Buyside needs transparency of authorized substances

REACH will call for a wide range of documents and information for registration, the preparation of which can be a cost and time-intensive process, depending on the annual production volume involved. For the buyside in an M&A transaction, it is important to obtain detailed information about the number of authorized substances in the target portfolio and any restrictions to their use and ascertain the date and duration of such authorization. The transparency of future authorizations should also be established.

The transaction service and M&A experts at PricewaterhouseCoopers have many years of experience in the chemicals industry. Coupled with the in-depth knowledge of our REACH specialists, this skillset ensures the necessary high quality standard of a REACH Due Diligence.