Like U.S. consumers celebrating holidays and post-holiday sales, chemical giants have been in the mood to shop lately, and biotech is on their lists. Earlier this month, DuPont announced that it is buying Danisco for about $6 billion. DuPont is, of course, an iconic chemicals and materials company, while Danisco is an industrial biotech company, making chemical “parts” for products as diverse as biofuels, foods, and detergents.
This big news came close on the heels of DSM’s bid of $1.1B for Martek, an algae company (the biggest one, actually) that makes food ingredients and nutrition products, but dabbles in biofuels, as well (BP has a biofuels JDA and $10M investment with Martek). Also, just a few months earlier, DSM bought another nutrition/biofuels company, Microbia.
Why are these transactions important? Because they provide further evidence that traditional chemicals and materials companies are expanding beyond petroleum-based materials and industrial chemicals to get into biotechnology – but they’re not just using small investments in small start-ups to do so. There are two huge strategic drivers behind the trend (see the January 5, 2010 LRBJ – client registration required). First, there’s the erosion of the basic petrochemicals commodity business by new entrants from oil-producing nations, like SABIC; and, second, there’s the opportunity to leverage biotechnology to produce new chemicals and materials at the high-performance edge of the spectrum (see the September 15, 2009 LRBJ – client registration required). With the stakes now in the billions, expect more M&A activity targeting larger biospecialists like Novozymes as the agriculture, chemicals, and energy industries pursue the same opportunities in biomaterials and biofuels.