Sean Milmo, European Correspondent03.21.16
A deal under which AkzoNobel is taking over BASF’s global industrial coatings operations could be the first of a number of initiatives among Europe’s coating businesses to reorganize their activities.
After a period of consolidation in the wake of the post-2008 economic crisis companies are now seeking opportunities both for expansion and for concentrating their resources more effectively on priority areas, particularly where they can extend their technological competences.
Under the AkzoNobel-BASF deal, AkzoNobel is acquiring for €475 million ($520 million) BASF Coatings’ businesses and technologies in coil, furniture foil and panel coatings, as well as coatings for wind energy plants, general industry and commercial transport. The businesses have total annual sales of approximately $300 million so that AkzoNobel will be paying approximately 1.6 times sales revenue.
For AkzoNobel the agreement, which is due to be completed by the end of this year, was part of its strategy of gaining “leading market positions delivering leading performance,” according to the company’s chief executive Tön Buchner.
But it also represents for the company, a shift in strategy from one restricted to raising efficiencies to one directed to organic growth and, if necessary, expansions through acquisition.
“We have been relatively cautious with regard to acquisitions in recent years, choosing to concentrate on performance improvement through operational excellence,” he explained. “However, we are now at a stage where we will focus on organic growth and innovation and, where applicable, will consider value-generating bolt-on acquisitions, in line with our focus on market leading and profitable positions.”
For BASF Coatings, the divestment will offer a chance, according to the company, to “further strengthen its focus” on its core automotive OEM and automotive refinish coatings businesses in which it is among the global leaders both in terms of market shares and technologically. It will also be seeking to fortify the position of its South American decorative paint business in its domestic market of Brazil.
For the European coatings industry, the broad performance and industrial coatings sector, including coatings for transportation, wood products, appliances and machinery, as well as coil and protective coatings, has been presenting big opportunities for higher sales growth and greater profitability.
Last year’s financial results of coatings companies in Europe are showing that industrial coatings and related coatings businesses have been performing better than operations in decorative paints.
Not surprisingly companies are looking for ways to reinforce their positions in an area in which there is a lot of scope for high-margin sales.
The financial results of AkzoNobel’s Performance Coatings segment has in recent years been, on the whole, much more impressive than those of its Decorative Paints operation and its third segment of Specialty Chemicals.
In four out of the last five years, the returns on sales of Performance Chemical has exceeded those of both of the other operations, while in all five years its return on investment (ROI) has been much higher.
In comparison to the decorative business, which is the market leader in Europe, the ROI of Performance Chemicals has been, in most years, more than double that of Decorative Paints. Since 2012, its ROI has consistently been higher than the AkzoNobel’s group ROI guidance target for 2016-18 and, for the last two years, that for return on sales as well.
Last year its return on sales was 13 percent and ROI 29 percent, its highest in the last five years. Total sales of its three sectors – marine and protective coatings, automotive and specialty and industrial and powder coatings – went up 7 percent to €5.95 billion and operating income up 45 percent to €792 million.
The transaction with BASF will considerably bolster AkzoNobel’s position in coil coatings in which it is already world leader. Since BASF is also a major coil coatings producer this part of the deal could run into difficulties with competition authorities.
The agreement also brings AkzoNobel into two new business areas – wind turbine blades and furniture foils. BASF has been a pioneer in the development of weather resistant coatings for blades of offshore wind turbine, especially those in locations with frequent stormy conditions, like the North Sea.
“This part of the deal will be a good fit for us because we have a leading position in provision of coatings for the bases of the offshore wind turbines,” said an AkzoNobel spokesman. “Also the foil coatings activity in the furniture market will be a useful addition to the effects supplied by our wood coatings business.”
As part of the agreement, AksoNobel will be taking over two of BASF’s coatings plants – one in Deesside in the UK and the other in Vanderbijlpark, South Africa. The Deesside unit will reinforce the company’s presence in the UK where it has a major, recently-commissioned coatings plant at Ashington, northeast England where it also has one of its main coatings R&D units.
Coil coatings account for a high proportion of the output at Deesside, which is near a site of Tata Steel, formerly British Steel, its biggest customer for the coatings.
BASF and Tata are among the leading private sector participants in a £20 million ($28 million) research project in south Wales on the use of nano-scale structures within coil and other coatings for solar energy conversion, particularly on the outside of buildings. AkzoNobel, which has had a lesser role in the project, will not comment on its future position in the scheme.
“However, we are interested in the potential of developing coatings systems that can harness solar energy, “ said the company’s spokesman. “ We are already active in the renewable energy sector via our coatings for wind, wave and tidal systems, and we also produce low solar absorption coatings that help keep buildings cool.”
Meanwhile BASF, with its attention now closely directed at a single sector, will be targeting its efforts at realizing the potential of new resins and color systems in the automotive market. A big competitive advantage in the OEM sector is its expertise in particle and dispersion technologies to create innovative colors and effects which set new trends in the market.
A major influence behind likely future acquisitions and divestments in the European performance and industrial coatings sector will be a need to develop and commercialize new cutting edge technologies.
After a period of consolidation in the wake of the post-2008 economic crisis companies are now seeking opportunities both for expansion and for concentrating their resources more effectively on priority areas, particularly where they can extend their technological competences.
Under the AkzoNobel-BASF deal, AkzoNobel is acquiring for €475 million ($520 million) BASF Coatings’ businesses and technologies in coil, furniture foil and panel coatings, as well as coatings for wind energy plants, general industry and commercial transport. The businesses have total annual sales of approximately $300 million so that AkzoNobel will be paying approximately 1.6 times sales revenue.
For AkzoNobel the agreement, which is due to be completed by the end of this year, was part of its strategy of gaining “leading market positions delivering leading performance,” according to the company’s chief executive Tön Buchner.
But it also represents for the company, a shift in strategy from one restricted to raising efficiencies to one directed to organic growth and, if necessary, expansions through acquisition.
“We have been relatively cautious with regard to acquisitions in recent years, choosing to concentrate on performance improvement through operational excellence,” he explained. “However, we are now at a stage where we will focus on organic growth and innovation and, where applicable, will consider value-generating bolt-on acquisitions, in line with our focus on market leading and profitable positions.”
For BASF Coatings, the divestment will offer a chance, according to the company, to “further strengthen its focus” on its core automotive OEM and automotive refinish coatings businesses in which it is among the global leaders both in terms of market shares and technologically. It will also be seeking to fortify the position of its South American decorative paint business in its domestic market of Brazil.
For the European coatings industry, the broad performance and industrial coatings sector, including coatings for transportation, wood products, appliances and machinery, as well as coil and protective coatings, has been presenting big opportunities for higher sales growth and greater profitability.
Last year’s financial results of coatings companies in Europe are showing that industrial coatings and related coatings businesses have been performing better than operations in decorative paints.
Not surprisingly companies are looking for ways to reinforce their positions in an area in which there is a lot of scope for high-margin sales.
The financial results of AkzoNobel’s Performance Coatings segment has in recent years been, on the whole, much more impressive than those of its Decorative Paints operation and its third segment of Specialty Chemicals.
In four out of the last five years, the returns on sales of Performance Chemical has exceeded those of both of the other operations, while in all five years its return on investment (ROI) has been much higher.
In comparison to the decorative business, which is the market leader in Europe, the ROI of Performance Chemicals has been, in most years, more than double that of Decorative Paints. Since 2012, its ROI has consistently been higher than the AkzoNobel’s group ROI guidance target for 2016-18 and, for the last two years, that for return on sales as well.
Last year its return on sales was 13 percent and ROI 29 percent, its highest in the last five years. Total sales of its three sectors – marine and protective coatings, automotive and specialty and industrial and powder coatings – went up 7 percent to €5.95 billion and operating income up 45 percent to €792 million.
The transaction with BASF will considerably bolster AkzoNobel’s position in coil coatings in which it is already world leader. Since BASF is also a major coil coatings producer this part of the deal could run into difficulties with competition authorities.
The agreement also brings AkzoNobel into two new business areas – wind turbine blades and furniture foils. BASF has been a pioneer in the development of weather resistant coatings for blades of offshore wind turbine, especially those in locations with frequent stormy conditions, like the North Sea.
“This part of the deal will be a good fit for us because we have a leading position in provision of coatings for the bases of the offshore wind turbines,” said an AkzoNobel spokesman. “Also the foil coatings activity in the furniture market will be a useful addition to the effects supplied by our wood coatings business.”
As part of the agreement, AksoNobel will be taking over two of BASF’s coatings plants – one in Deesside in the UK and the other in Vanderbijlpark, South Africa. The Deesside unit will reinforce the company’s presence in the UK where it has a major, recently-commissioned coatings plant at Ashington, northeast England where it also has one of its main coatings R&D units.
Coil coatings account for a high proportion of the output at Deesside, which is near a site of Tata Steel, formerly British Steel, its biggest customer for the coatings.
BASF and Tata are among the leading private sector participants in a £20 million ($28 million) research project in south Wales on the use of nano-scale structures within coil and other coatings for solar energy conversion, particularly on the outside of buildings. AkzoNobel, which has had a lesser role in the project, will not comment on its future position in the scheme.
“However, we are interested in the potential of developing coatings systems that can harness solar energy, “ said the company’s spokesman. “ We are already active in the renewable energy sector via our coatings for wind, wave and tidal systems, and we also produce low solar absorption coatings that help keep buildings cool.”
Meanwhile BASF, with its attention now closely directed at a single sector, will be targeting its efforts at realizing the potential of new resins and color systems in the automotive market. A big competitive advantage in the OEM sector is its expertise in particle and dispersion technologies to create innovative colors and effects which set new trends in the market.
A major influence behind likely future acquisitions and divestments in the European performance and industrial coatings sector will be a need to develop and commercialize new cutting edge technologies.
