Chemical Blog

Consolidation continues to reshape the chemical distribution industry




Consolidation continues to be an ongoing trend in the chemical distribution industry, driven by the sector’s highly-fragmented state. Despite steady deal activity driven by private equity and the emergence of large, publicly traded global players, the industry currently has more than 10,000 distributors globally, according to industry experts. Global distributors, such as Brenntag and Univar, will continue to acquire smaller companies to expand global footprint and fill in gaps in their portfolios. Additionally, they are developing more sophisticated distribution models to reduce the cost and increase their product knowledge according to specific application requirements, according to Technavio’s Global Third-party Chemical Distribution Market 2016-2020 report.

Brenntag, the largest global chemical distributor, has made a steady stream of acquisitions in recent years, ranging from small to large. It has made six acquisitions in 2016 so far, expanding its footprint across Asia, North America, Africa, and Europe. Brenntag CEO Steve Holland told CW that “M&A is an important part of [Brenntag’s] business model,” and that the company typically expects to spend about €200–300 million ($221.6–332.5 million) annually on acquisitions. Univar—the second-largest distributor—and specialties player Azelis have made notable acquisitions recently, expanding their presence in the Americas and Europe.

Increased regulations in the industry have played a part in driving consolidation, particularly among small firms. Eric Byer, president of the National Association of Chemical Distributors (NACD: Washington, DC), notes that smaller companies are more quick to agree to an acquisition due to lacking the budget to maintain an internal compliance team.

Despite being affected by various market challenges, the industry is positioned for growth in 2017. Many companies have diversified their product offerings given the downturn in the oil and gas sector. Additionally, the industry is seeing increased growth in employment, which demonstrates confidence their bottom lines will continue growing in the coming year. Technavio forecasts the global distribution market is expected to grow 6%/year through 2020 because of the increase of manufacturing and consumption of chemicals across several industries driven by global industrialization.

Consolidation continues to be an ongoing trend in the chemical distribution industry, driven by the sector's highly-fragmented state. Despite steady deal activity driven by private equity and the emergence of large, publicly traded global players, the industry currently has more than 10,000 distributors globally.

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Jing Chen is the Associate Editor, IHS Chemical Week
Posted 18 November 2016