Tough Talk: Mergers and Acquisitions Dominate the News
Posted on Monday, July 24, 2017
Anyone in the coatings industry can’t help but
notice the spate of mergers and acquisitions
(M&A) activity over the past couple years.
Mega-deals are currently in the works and numerous
medium-to-large transactions have occurred in the
recent past. This phenomenon has been pervasive
across the chemical industry, including raw material
suppliers and paint companies. With this continual
surge of activity, it makes one wonder why and what’s
behind this frenzy.
The audit/tax/advisory firm, KPMG, provides some
insight into why companies seek growth inorganically
through acquisitions, mergers and joint ventures as
opposed to the traditional internal organic growth.
For 2017, they found that 40 percent of firms
planning M&A activity cite limited organic growth
opportunities. Another 25 percent feel it is because of
a need to address a transformation in the marketplace
and/or current business models. A further 17 percent
are driven by favorable credit terms and 14 percent say
they have large cash reserves they are looking to spend.
When I look at the coatings industry, I see
three main drivers. First, it is apparent that larger
companies buy smaller, more nimble enterprises to
acquire relevant technology and niche market share.
PPG purchased Spraylat (AAMA 2505 architectural
technology) and IVC (office furniture market share)
for precisely this reason. In other cases, SherwinWilliams’
bid to buy Valspar appears to be driven
by the painfully slow pace of organic growth in the
relatively mature powder coating markets in Western
Europe and North America. Although analysts peg
the compound annual growth rate (CAGR) of the
overall global powder coating market to be 6.0 to
7.0 percent for the next few years, the European and
North American powder markets are expected to grow
at a more modest 2.5 to 3.0 percent CAGR. Another
driver is a shareholder focus on an improved return on
investment (ROI). It’s quite obvious that a multitude
of staff positions are made redundant when companies
combine significantly—reducing fixed overhead, which
can bolster the bottom line.
The rather entertaining pursuit PPG has expended
in its quest to acquire AkzoNobel seems to be driven
by meager organic growth opportunities. Both
companies have fairly complete global coverage and
both participate in nearly every coating technology
and market sector. PPG is obviously stronger in its
home market of North America and AkzoNobel has
a larger presence in Europe, however they compete
on relatively even ground across the rest of the world.
PPG’s relentless quest to purchase AkzoNobel is
akin to a persistent suitor trying to charm and cajole
the town’s prettiest girl into their first date with the
eventual goal of marriage. PPG’s CEO has gone as far
as writing an open letter to AkzoNobel’s stakeholders
trying to convince them of the wisdom of a takeover.
In addition, he has promised that PPG would keep
the strong relations AkzoNobel enjoys in Europe and
the Netherlands, maintain the headquarters of the
decorative and architectural specialties and coatings
business in the Netherlands, that no European facility
will be transferred in the United States, and the bases
of protective coatings and naval applications in the
Netherlands and the United Kingdom will be retained.
For the employees, acquired rights and implemented
wage and social deals would not be affected by the
acquisition. There would be no dismissal in the
Netherlands as part of the deal.
Well it seems that the belle of the ball, AkzoNobel,
stood her ground and PPG finally relented. There
will be no acquisition. The New York Times writes,
“PPG had faced a deadline on Thursday under Dutch
takeover rules to make a formal offer for AkzoNobel,
which had repeatedly rejected its overtures. AkzoNobel
had said that PPG’s offers undervalued the company
and that PPG had done little to address its concerns
about potential antitrust issues that could have
derailed a deal.”
Experts speculate that other mega-deals may
be in the offing. Some consider Axalta as the next
potential acquisition target. The question is, by whom?
Who is big enough to swallow these major players?
Regardless, if the coatings industry follows the lead of
the chemicals industry, it’s likely that more blockbuster
deals may develop. Look no further than the DowDuPont
and Bayer-Monsanto deals and the most recent
Huntsman-Clariant merger. Stay tuned.
Kevin Biller is technical editor of Powder Coated
Tough and the president of The Powder Coating
Research Group. He can be reached at