Coatings World - February 2011

M&A Activity Gains Momentum

Merger and
acquisition activity
in Europe’s coatings
sector has started
to revive as the
region slowly
recovers from the
effects of the
recession.

by Sean Milmo European Correspondent milmocw@rodpub.com

Merger and acquisition (M&A) deals are being bolstered by the relatively large cash reserves companies have been building up to strengthen their cash flows during the downturn.

Also private equity funds are now taking the opportunity to offload investments in the sector, which they made before the recession.

The vast majority of M&A activity involves suppliers of coatings materials but analysts believe that the increase in takeovers will soon spread to coatings producers themselves because of a general need within the European coatings industry for restructuring.

In particular companies see a necessity to build up the strength of their core operations not only in their mainly Western European domestic markets but also in the high growth economies of Asia, Latin America and Eastern Europe.

Although a major driver behind M&A deals is consolidation, another big impetus is a requirement to gain access to raw materials at a time of rising costs of some bulk and specialty chemical ingredients.

“Availability of reasonably priced raw materials is now a major preoccupation of coating companies and their suppliers,” said an official at one European trade association representing

coatings companies as well as other downstream
chemical users. “They are worried not just about
raw material costs but also about the prevalence
of shortages. These difficulties with raw materi-
als are influencing longer term strategies.”
Acquisition of companies with access to key
raw materials is one way of easing the problem.
Another option is to use takeovers to build up
vertically integrated operations to enable com-
panies to have full control of the production of
raw materials as well as of the downstream
manufacture of products in which they are used.

The main objectives of two of the latest major acquisitions in the coatings sector—the sale of PolymerLatex of Germany by the equity fund TowerBrook Capital to Yule Catto of the UK and the purchase by France’s Arkema of Total’s coating resins businesses—have been consolidation to expand core operations.

“(Yule Catto’s acquisition) represents another example of the recent pick-up of both UK and continental European M&A activity,” said Martin Shaw, a senior executive at the international law firm Pinsent Masons, which is handling the takeover for the UK-based company.

However for Arkema, which is both a petrochemicals and specialty chemicals producer, the aim of the resins acquisition was not only consolidation but also to establish a leading global coating materials business which would be backward integrated into raw materials.