Adhesives & Sealants Market Update

By Christine Esposito | August 10, 2005

Between the economy and increased competition cost pressures and environmental hurdles, adhesives and sealant manufacturers look to acquisitions to boost their business.

Globalization. Pricing pressures. Tougher environmental regulations. Continual customer requests to do it better, faster and cheaper. This is the lament of adhesives and sealant manufacturers worldwide. But these companies don't expect you to feel sorry for them. They know that most companies in the manufacturing world are singing a similar song.

"The issues facing adhesives companies today are common to many facets of the manufacturing world," said Nick Gutwein, adhesives and sealants vice president and worldwide business director for Rohm and Haas Company. "Trends of globalization and industry consolidation throughout the value chain-from raw material supplier to retailer-as well as environmental awareness and increasing demand for high-speed production of high performance products, are daily influences in our operations and crafting of business strategies."

Paul Haelg, executive vice president, adhesives, Forbo Group, also noted the similar climate in which his company is operating. Slow economic growth in main markets like the U.S. and Europe, overcapacities, and consequently price pressure, as well as uncertainty about development of raw materials were some of the issues cited by Mr. Haelg. Many companies react in plant closures and cost cutting. Forbo uses this period of downturn for a major strategic expansion of the business."

That same strategy has been in use across the adhesives and sealants industry. Based on recent transactions, leaders in the marketplace are spending money in order to make money. Companies such as Rohm and Haas, Forbo and Quest Specialty Chemicals have completed deals aimed at increasing their operations in key geographical areas and product segments they contend will bolster their business.

Forbo adhesives are used in car interiors.

M&A Activities Continue
In April, Forbo, based in Eglisau/Zurich, Switzerland, acquired the Swift adhesives business from Reichhold Inc. The $210 million purchase gave Forbo adhesives activities for industrial applications valued at annual sales of more than $240 million. Most importantly, the accord gives Forbo a greater presence in North America, as more than half of Swift's sales come from this continent.

"It is Forbo's corporate strategy to develop-alongside the flooring adhesive business-a global industrial adhesive business," said Mr. Haelg. "Swift is very complementary to the Forbo business, both in terms of geography as well as market segments. It provides us with a global platform to multiply our strong market niche positions and adds the critical mass to operate cost efficiently," he added.

While Forbo was looking to expand its adhesives business, another leader in the marketplace has decided to fine-tune its operations. As part of a strategy of reducing local brands and concentrating more on international brands, Henkel Loctite Adesivi Srl, an Italian operation of Henkel, has announced plans to sell the Bostik brand to Misal Arexons SpA. In the agreement-inked on March 27 in Milan-the Bostik brand will be transferred to Misal Arexons, effective July 1.

"This acquisition constitutes the prerequisite for a significant expansion of our presence in the adhesive and sealant sector and will contribute to the attainment of important growth objectives," said Massimo Laccisaglia, managing director of Misal Arexons.

Henkel Loctite Adesivi is not exiting the Italian market; it will maintain its presence in the adhesives and sealant market with other brands. "For Henkel the sale of the Bostik brand represents an important step towards the process of standardizing and consolidating international brands to allow for a greater focus on the future development of existing strategic businesses," said Bart Steenken, general manager of the consumer adhesives division of Henkel Italia.

Prior to the Forbo/Swift and Henkel Loctite/Misal deals, Quest Specialty Chemicals and Rohm and Haas made purchases to build their adhesives operations.

Quest Specialty Chemicals Inc. acquired the adhesives and sealants division of Uniroyal Technology Corp., a business focused on industrial adhesives and sealants, commercial roofing adhesives and mirror mastics. Since the deal was closed, the unit, which still conducts business from its South Bend, IN manufacturing site, has been operating as Royal Adhesives and Sealants.

Rohm and Haas Company's last purchase came in 2001 when it acquired the flexible packaging adhesives business of Technical Coatings Co., a subsidiary of Benjamin Moore. By doing so, Rohm and Haas added the Coseal line of cold seal adhesives to its product stable and increased its presence in this technology which is used in food and medical markets.

Since the accord was finalized, Rohm and Haas has worked quickly to integrate Technical Coatings into its mix-and hasn't wasted any time in expanding presence in the flexible packaging adhesives market. In January, the company introduced a new water-based, cold seal adhesive product line called Robond CS to the European market, and said it would also make the technology available to Latin America and Asia-Pacific markets.

There are three types of products within the Robond CS family: Robond CS 1000 and 2000 for application on plastic film and Robond CS 3000 for paper. (Rohm and Haas also offers solvent-based lacquer for application to the reverse side of the cold seal substrate.)

Rohm and Haas' international expansion plans don't end there. The company is investing $20 million to build a facility in Mumbai, India to make polyurethane and polyester-based adhesives, adhesive formulations for flexible packaging applications and acrylic emulsions for pressure-sensitive adhesives. The new facility, which also makes water-based latex for paints and coatings, will export products to Asia-Pacific customers.

Construction of the new facility is scheduled for completion in 2003.�When finished, it will join Rohm and Haas' network of more than 100 research and manufacturing sites located in 25 countries. In addition, production is now under way at an adhesives and sealants plant Rohm and Haas operates in Jacarei, Brazil.

"Consumer needs for flexible packaging materials and pressure sensitive adhesives is growing rapidly in emerging markets such as India, China and Brazil," said Mr. Gutwein. "Many of these markets are being driven by global food companies, automotive companies, and we believe it is a real advantage for Rohm and Haas to be positioned in these markets with the capability of offering the same product range and quality we do elsewhere in the world."

Mr. Gutwein continued, "Through introductions of new products brought to market through either internal R&D or through bolt-on acquisitions, our comprehensive range of innovative technologies is a visible display of this company's commitment to adhesives and sealants."

Solutia Inc. has also revealed plans to expand its international presence in the market. Following successful pilot plant and industrial-size batch tests, Solutia will start-up production of Gelva pressure sensitive adhesive (PSA) products at its plant in France.

"We're excited about the opportunity this new production capacity will give us to expand our presence in Europe," said Nathalie Delava, who was recently tapped to serve as European product manager for the adhesives business line (see p. 61 for details). "We already enjoy an outstanding reputation among customers here for the technical performance of our products. By bringing local production on stream, we expect to be able to better serve our customers enabling us to be a significant supplier throughout Europe."

The manufacturing unit, located in Dijon, will produce solution acrylic PSA products starting in the latter part of the year, according to Solutia executives. The line includes adhesive formulations for graphics and printing, automotive, medical and solar films applications. In addition, Solutia's adhesives customer support lab and warehousing has moved to Dijon. The plant, which opened in 1965, currently produces alkyd, polyester and acrylic resins for coating applications.

Innovation is Still a Factor
Companies in the adhesive and sealant market continue to address customer concerns about cost, however innovative product development remains a priority.

"Customers want the means to assemble or seal their products with less weight, less expense, and greater reliability. Although there is a very strong demand for improved efficiencies of manufacturing processes, innovation continues to drive the market," said Mr. Gutwein of Rohm and Haas. "While most of our customers face continual cost pressure, new product features/functionality are still more critical than price alone. Further, we tend not to focus on simple unit price of the adhesive but, rather focus on cost-in-use at our customers."

Sales of Specialty Adhesives by End-Use

2001 2006 AAGR %2001-2006
Packaging 1,322 1,599 3.9
Non-rigid bonding 1,305 1,634 4.6
Construction 1,002 1,203 3.7
Others* 2,040 2,551 4.6
Total 5,669 6,987 4.3

Source:Business Communications Company

* includes tapes, labels, miscellaneous rigid bonding, transportation, consumer glues, electronics, dental and medical.

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