Tough Talk: Mergers and Acquisitions Dominate the News

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
kevinbiller@yahoo.com