Never in the history of epoxies, sealants and resins has the business climate been so difficult. The world economy, oil prices, complex logistics, higher spec demands from end users and ever changing legislation mean that the industry is under more pressure than ever before. The growing number of producers, suppliers and traders, and products, on a global scale, makes finding the right business strategy harder than ever before.

So what challenges do industry leaders envisage in the coming months and years, and how are they planning to cope with these new problems?

Certainly feedstock sourcing is more complex than ever, but the industry is also under pressure due to tightening of regulations, as well as a recent spate of M&A’s that has altered the market landscape, plus there has been a steady flow of new products and the impact of globalization.

This article will analyze each of these topics in order, and note the advice given by many experts in the sealant, adhesive and resin industry in how to face these challenges.

How Can Businesses Handle the Effects of Mergers & Acquisitions in the Sealant, Adhesive and Resin Industry?

For many years now the sealant industry has had a wide variety of smaller players, but recently there have been a number of M&A’s that have transformed the market in one way or another. For many employees, hearing the news of a takeover can be a worrying experience, but most industry heads believe these changes to be a positive influence. For example, Patricia C. Souza, the Market Segment Manager at Lanxess Corp. thinks that, “Consolidations in the raw material industry can be very positive due to synergies achieved through this process, such as better product portfolio (additional lines and chemistries), higher investment in R&D and regulatory affairs, and better raw material costs. Overall, economies of scale will have a positive effect at the production chain for raw material and adhesives producers.”

Keith Olesen, Field Marketing Manager at Arkema Coating Resins, can also see many reasons why sealant companies would wish to buy others out, noting that mergers can become a means not just to grow in size, but also to broaden into new markets. He states that, “Larger, more integrated suppliers can bring economies of scale, security of supply and the ability to invest in assets. As companies expand geographically through M&A, it is important as a supplier to the industry to be able to offer products of interest to our adhesives and sealants customers locally in the regions where they operate.” He continues by giving an example of how his company has adapted a buying strategy, saying, “Arkema has been investing in high-growth economies, which are target regions for many of our customers. In recent years we have added manufacturing assets in China and Brazil to support our customers’ growth in these regions.”

Julie O. Vaughn, Vice President, Marketing and Business Development at Emerald Performance Materials, also thinks that acquisitions allow a short cut to diversification for a business, either by expanding into new territory (as Arkema has) or into new fields and sectors of the sealant trade. She notes the positive affect that the mergers have had saying, “The adhesives industry has gone through significant consolidation over the years, with a good track record for successes. Recently, we have seen companies broaden their portfolios by acquiring companies with complementary products. As these companies expand into profitable niche areas, add new technologies or fill gaps in their portfolios, this may serve to further stimulate innovation in new ways. We see this as very positive.”

This is something that Greg Bunker, Global Business Director for Adhesives and Functional Materials at Dow Packaging and Specialty Plastics, agrees with. He notes that, “Traditionally, the adhesives and sealants industry has been a very fragmented market. As we see more M&A occurring, I think it suggests companies want a bigger footprint that increases the number of markets they can serve and provides customers with a broader set of technologies. This shift is why Dow is operating under a foundation of ‘Science that Connects.’ It reflects how Dow has adhesives serving the packaging, automotive, building and construction, and consumer sealants markets, and we are also a large supplier of a broad base of chemistries and technologies that deliver the ability to develop new adhesives.”

However, mergers are not without their downsides, as Marc Benevento, Managing Director of Industrial Market Insight notes, “Chemical supplier consolidation often leads to product line rationalization and discontinuation of products used in adhesive formulations. This can require downstream products, such as adhesives and primers, to be reformulated, triggering a lengthy and costly requalification process for many applications. Ultimately, this consumes resources at adhesive manufacturers and their customers, who spend months (even years) reinventing the wheel rather than advancing technology.”

Whether you are a pessimist or an optimist when reviewing the large number of M&A’s in the industry, it is always worthwhile to consider adapting a new strategy should the situation arise in your sector. As Scott Coring, Vice President of Sales & Marketing at STI Polymer says, “For adhesive manufacturers, M&A’s indicate fewer competitors, but ultimately they are creating larger companies with diverse product offerings spanning a variety of markets. Strategies will need to be adjusted to recognize a new playing field, one consisting of larger players with boundless purchasing power, but with restricted flexibility.”

So whilst the smaller business may be concerned at the spending that larger corporations are able to take on and the R&D resources that they have to develop new products, it seems that mergers also leave niche markets where specified demands of end users can be profitably met by business savvy manufacturers.

Given that the modern business world is filled with M&A’s, and that the sealant and epoxy industry contains so many smaller firms, it is certain that they will continue to happen in the years ahead. Whether one sees them as a positive or negative influence may be a moot point. For good or bad they exist, so instead it is perhaps best to ask yourself, ‘Can they be turned to my advantage?’