Arkema looks to capitalize on recent acquisition

COLOMBES, France—Arkema S.A. has big plans for its Bostik unit, which includes bringing a new technology platform into its repertoire.

The firm has finalized an agreement to acquire sealants manufacturer Den Braven for about $534 million in cash, pending necessary approvals. The transaction would give Bostik, which focuses mainly on high performance adhesives technology, an array of sealant products to market through its global network.

Bostik said in a news release it expects the transaction to close in the fourth quarter of 2016. If completed, Den Braven would be integrated into Bostik, which is part of Arkema's High Performance Materials segment.

“We have a strong ambition for Bostik,” an Arkema spokeswoman said. “Our intention for Bostik is to continue to grow and accelerate the development of this part of Arkema.”

Den Braven estimated its 2016 sales at about $385 million. It employs more than 1,000 and operates eight global production sites—six in Europe, one in the U.S. and one in Turkey. It manufactures sealants using a variety of technologies—including silicone, polyurethanes and polyurethane foams. Arkema projects about $33 million of annual cost synergies once the unit is fully integrated into Bostik.

The spokeswoman said Bostik currently focuses on high performance sealants through its polymer modified binder technology and that Den Braven brings a wider range of sealant technology to the table.

According to an Arkema presentation on the transaction, Den Braven has a large presence in Europe. Arkema estimated the company had a 12 percent share of the European market, with 58 percent of its sales generated in Western Europe. Only 7 percent of its sales were generated in North America.

About 35 percent of Den Braven's sales came from emerging markets. However, the spokeswoman said this includes Central and Eastern Europe, which combine for 28 percent of the firm's sales. The Middle East, Africa, Asia and the rest of the world combine for 7 percent of the firm's total sales.

Bostik, on the other hand, has about a 30 percent share of its sales in emerging markets, especially in Asia.

Andrew Hinz, a managing director at Grace Matthews which specializes in adhesives, among other markets, said Den Braven is an excellent strategic fit for Bostik. The acquisition will allow Bostik to offer both technology groups to customers in similar end markets—mainly construction and assembly.

Grace Matthews is a middle-market investment bank focused on merger and acquisition advisory services.

“When you think about the fit between the two, it's quite remarkable actually,” Hinz said. “It's very strong. You have Bostik with expertise in adhesives, with a global network of production facilities and a broad network of sales and marketing people. Layering Den Braven's strong portfolio of sealants technologies on top of Bostik's adhesives platform is pretty powerful.”

The spokeswoman said Central and Eastern Europe are considered emerging markets because of projected future regulations that are on tap to match that of Western Europe. These projected energy efficiency requirements will be the main drivers of growth in the building and construction area. The spokeswoman added that for the rest of the emerging markets, growth is projected to come from increased urbanization.

Bostik said Den Braven's technology will help accelerate its growth thanks to the excellent entry point in emerging countries that these new products represent, specifically citing Asia as a region of focus and noting the high performance sealants market is forecast to grow 3-4 percent per year.

Eric Linak, senior principal analyst for IHS Market Chemicals' Resins and Coatings Group, said in an email that the adhesives and sealants industry will experience growth of about 5.5 percent annually in China and about 2.5 percent per year in the rest of Asia, excluding Japan.

Hinz said the adhesives and sealants market has some concentration at the top, with the top 15 players accounting for about 50 percent of the market share. Beyond that, a bevy of other niche players make up the other half, focusing on a region, technology or a unique niche. He estimates that less than a quarter of the market includes companies with $100 million to $500 million in sales. It's a win-win for both Bostik and Den Braven,” Hinz said. “What Den Braven does is basically create a platform for Bostik from which they can grow in the sealants market.

“While Bostik does have some business today on the sealants side, its presence is increased dramatically by bringing in Den Braven's well-established platform of technologies and brands. Bostik now can be a strong strategic buyer in the sealants market as well as in the adhesives market.”

Linak said overall this consolidation won't have a great effect on the adhesives and sealants market because it is very diverse, estimating that more than 2,000 companies are participating in the industry. He said if the acquisition is approved, Bostik's sales would increase to $2.2 billion, making it the second largest producer of adhesives and sealants in the world with a 4.5 percent global share.

“Den Braven is a leader in the Western European construction industry and will strengthen Bostik's presence,” Linak said. “In the sealants market, Den Braven has greater presence in the joint filling market where Bostik is less focused, whereas Bostik is stronger in product assembly. Both have presences in the panel facade and windows and door frame sealant market.”

Arkema said the acquisition helps further its goal of developing its High Performance Materials segment, which it hopes will account for 50 percent of the company's total sales by 2020.

The firm reported $8.46 billion in sales for 2015, of which High Performance Materials accounted for about $3.7 billion—or 43.7 percent, easily making it the largest business segment.

Integrating Bostik accounted for $1.65 billion in sales over 11 months and caused the segment's total to jump 94.1 percent compared to 2014.

It also wants to double Bostik's EBITDA by 2020 compared to its 2014 figure and has been busy investing in the unit. Bostik reported EBITDA of $174.9 million in 2014. The spokeswoman said it is on track to add about $110.7 million in EBITDA by 2020.

Arkema wants to increase Bostik's EBITDA margin to 15 percent by 2020 compared to 10.3 percent in 2014 and double the firm's organic growth to between 7-8 percent, currently sitting at 3.5 percent.

So far in 2016, Bostik increased its polymer modified binder technology capacity in two regions—with a new plant in Helsingborg, Sweden, and an expansion in Sremban, Malaysia.

“This acquisition will allow us to fulfill a very ambitious program for Bostik,” she said.

Arkema operates two other business segments—Industrial Specialties, at $2.7 billion was about 32 percent of Arkema's 2015 sales; and Coating Solutions accounts for the remaining $2.03 billion. The firm employs about 19,000 with operations in nearly 50 countries.