YAO, Japan—Arkema S.A. has placed a high priority on the growth of its adhesives business, and it isn't just talk.
The firm is investing more capital into its adhesives unit, Bostik S.A., with an acquisition that will enhance its Japanese joint venture. Bostik-Nitta is acquiring the industrial adhesives business of Nitta-Gelatin Inc.—the other partner in the venture.
Financial terms of the acquisition were not disclosed. The business generates annual sales of about $35.4 million.
"It's really an interesting acquisition," said Jeff Merkt, Bostik's senior vice president of global nonwovens. "It gives us a great team in Japan and reinforces our business portfolio by getting us into another market segment, one we participate worldwide in a major way, but we weren't participating in Japan in a significant way."
As part of the deal, Bostik-Nitta will invest in the construction of a new world scale hot melt adhesives plant in Nara, about 18 miles from its existing site in Yao, that will include several production lines. One will be dedicated to adhesives for the nonwoven market for hygiene applications and the other for industrial adhesives markets.
Size, employment and financial details of the new facility were not disclosed. Merkt said the firm has secured the land and is in the final stages of design. The site will become operational in late 2019 with shipments beginning in early 2020.
"This new factory is going to allow us to have a large-scale site in Japan and will be able to produce technologies in Japan that are not produced today for both the industrial and the hygiene business by making the right investments," Merkt said. "With the right forethought and engineering, we feel we can be very productive and it's going to allow us to have the latest technologies produced in Japan."
Bostik and Nitta have operated their JV in Japan since the early 1980s, Merkt said. Nitta-Gelatin produces gelatin, collagen and collagen peptide products for a variety of applications, including food and beverage, pharmaceutical and nutraceutical, and biomedical research and technology.
Merkt said Nitta wants to expand its gelatin operations and were looking to support those investments by moving out of the industrial adhesives business, something it's had for 35 years. Nitta currently produces adhesives to serve both the JV and its own industrial business.
Bostik-Nitta now brings that production under its umbrella, with the Nara site to focus on hot melt production and the Yao site the rest. These include products made from styrenic block copolymers and urethanes.
Merkt said Nitta is in a No. 3 market position in Japan in terms of industrial adhesives and the Japanese market is the third-largest in the world, behind the U.S. and China, respectively. The structure of the JV will remain the same. While the firm did not provide an exact breakdown, Merkt said Bostik owns a majority share.
"It was a natural fit for us to work with a gelatin supplier because they weren't in a competing industry and we found some synergies with raw materials," Merkt said. "We've enjoyed a lot of success in Japan by supporting hygiene customers by both manufacturing in Japan and in the U.S. and Asia. The hygiene industry is very dynamic in Japan. A lot of the producers are market leaders in terms of technology and quality."
The moves support Arkema's strategy to develop its adhesives unit, which it has identified as one of the major drivers of its long-term growth.
Arkema operates in 55 countries with 20,000 employees, reporting annual sales of about $9.8 billion in 2017. So far its reported growth for 2018, as its first quarter sales increased by nearly 1 percent to $2.59 billion and net income jumped 32.7 percent to $232.6 million.
Bostik is a unit within Arkema's High Performance Materials segment. The segment reported a 2.3 percent increase in sales to $1.19 billion for the first quarter of 2018, accounting for 46 percent of Arkema's overall sales.
"We're an important part of the group now," Merkt said. "Arkema's been very supportive of closing on the targets that the leadership team have identified. All of the acquisitions we've made in the last couple of years have been great acquisitions."
Arkema acquired Bostik in 2015. Both used to be units of energy giant Total S.A. and were independently spun off into separate companies. Since then, it has been busy growing Bostik through bolt-on acquisitions. In 2016, Bostik added Den Braven for $543 million. In 2017 it acquired CMP Specialty Products, which at the time generated sales of $15 million, and added XL Brands to expand its U.S. flooring adhesives business in a deal with an enterprise value of $205 million.
"The adhesives industry is very fragmented," Merkt said. "There are opportunities to participate in a fragmented industry that Arkema saw as a polymer producer and an innovation company. And Bostik is a great acquisition for Arkema because it allows them to move downstream. We provide them with different insights into the market and greater opportunities to participate in the consolidation activity that exists within the broader specialty chemical marketplace."