Barren landscape: Gas volatility hits fertiliser M&A

Data InsightDealspeak 8 November

Barren landscape: Gas volatility hits fertiliser M&A

European fertiliser M&A is as volatile as the natural gas it relies on. The sector is heavily influenced by gas prices, which provides critical feedstock for producing ammonia, a key component of nitrogen fertilisers. 

Russia's invasion of Ukraine has sent gas prices upwards, as everyone knows. However, soaring energy costs have also forced some fertiliser plants to close, while sanctions on key exporters Russia and Belarus have led to global shortages and rising prices.

Deals in the sector have fallen as a result. European fertiliser deal values dropped to EUR 930m in 2022 year-to-date (YTD), the sector's lowest level since 2018, according to Dealogic data.

Austrian chemicals company Borealis made up the bulk of this deal value with the sale of its nitrogen business to Czech peer Agrofert for EUR 810m. It also sold its Belgian fertiliser manufacturer Rosier to Turkish metal and steel acquirer Yildirim Holding for EUR 120m.

Fallow market 

Deal flow in this sector has tended to follow the wider macroeconomic climate, with deals becoming rarer as prices soar. A clear example of this was Russia’s annexation of Crimea in 2014, which saw deal volume in the sector drop by 50% on the previous year, while YTD deal value nosedived from EUR 4.9bn in 2013 to EUR 387m in 2014. 

 On the other hand, the early stage of the COVID-19 pandemic brought a short-lived boom to the market. European fertiliser deals hit a seven-year record of EUR 5bn in total value for 2020 YTD, according to Dealogic. Prices were extremely low at the time - in July, the World Bank blog said that fertiliser prices had trebled over the previous two years.  

Cultivating growth

Nothing lasts forever, though. In recent weeks, gas prices have dropped. Fertiliser prices have also dropped as farmers baulk at rising costs and hold off on purchases.

Volatility hurts dealmaking activity, although there are green shoots of opportunity on the long-term horizon. Dealogic’s looking to issue (LTI) platform has identified three upcoming targets for M&A activity. The first to watch is Sustainable Agro Solutions, owned by private equity (PE) firm Stirling Square Capital Partners and with an LTI score of 42.12. 

PE backer Duke Street LLP’s portfolio company Compo Holding also features with an LTI score of 39.09, while Vendis Capital Management’s asset ECOstyle ranks third with an LTI score of 30.9. 

 The New Year could bring a new scenario as China, a major importer of liquified natural gas (LNG), looks to reopen its economy, potentially restarting commodity competition. If fertilizer prices continue to fall in 2023, as many expect, the case for consolidation to cut costs could gain traction.

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