Asian coatings companies continue to actively seek European assets

Despite a decline in the number of acquisitions and mergers in recent months, Ben Scharff, a corporate trading expert, has seen new developments in recent months. In our interview, Grace Matthews' managing director explained why.
Scharff is managing director of Grace Matthews

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you see an increase or decrease in M . . . activity in the industry?
: While total trading volume is comparable to the same period last year, we certainly expect the slowdown that began in the third quarter of 2018 to be fully reflected in the full-year trading data for 2019. We expect trading volumes to start to pick up in the second half of 2019. However, we expect overall annual trading volume to be about 10% lower than last year. Again, this is the crystal ball of the global economy. A strong market will lead to strong trading traffic. We're not there now, and the market needs a boost or stimulus to get us there. The status quo remains fairly healthy, and we expect similar levels of valuation and trading activity as we enter and navigate 2020.
your progress on mergers and acquisitions for the rest of 2019 and early 2020?
Scharf: Two things to note. First, we will continue to see portfolio optimization from large industry players. Second, we will see that the impact of a large concentration of private equity capital is particularly concentrated on chemicals-related transactions. Large chemical and coatings companies continue to deploy portfolio management strategies in light of valuations, pressure from aggressive shareholders and aggression from the buyer community. This strategy is more accepting of inbound queries for non-core assets and proactively looking for businesses that can have better homes. Unlike many divestitures in the past, many of the companies that are being spun off are good, healthy. While logically and more frequently ending with strategic partners, companies such as
DuPont and RPM recently said they would seek to spin off some businesses. One high-key deal on the market is BASF's sale of its $3 billion construction chemicals business. Our company has completed approximately 10 divestitures since the beginning of 2017 and we expect this activity to continue. Private equity is becoming increasingly active in chemicals and coatings mergers and acquisitions. We've recently seen billions of dollars in deals from Advent, EQT Partners and Carllyle.
the market benefit from ongoing consolidation, or will we reach a level that will have a negative impact?
: Interruption creates opportunities, and it's clear that they won't be shared equally across the market. Recent chemical distribution activities are a good example. Although Azelis has only changed private equity owners, we have witnessed a lot of discussion around the Univar/Nexeo deal and the impact felt throughout the value chain. On the one hand, you can save time and money by integrating supply chains and, to a lesser extent, the transportation/transport problems experienced in the United States (and Europe).
a lot of rumors, including and AkzoNobel. How likely is it that one of these companies will be targeted?
past few years, there has been a lot of discussion about the final outcome of Axalta, Valspar and RPM. After Sherwin Williams acquired Valspar, attention turned to Axalta and RPM. With PPG's proposal for AkzoNobel and the subsequent divestiture of its chemical business, AkzoNobel has re-entered these discussions. For now, both RPM and Axalta seem content with smaller strategic acquisitions. RPM is rationalizing operations to save costs - a feature that has historically acquired businesses and allowed them to operate fairly autonomously.
past few years, Asda has been a very successful corporate acquisition agency - it has acquired a list of targets for all major paint companies. Both companies clearly want to drive growth so that it is no longer a takeover target, but given the scarcity of paint assets in the middle market, it seems unlikely that meaningful growth will be driven by acquisitions in the short term.
is justified in the 2020 deal involving AkzoNobel. Either PPG is renegotiate its acquisition of them, or AkzoNobel is buying Axalta or RPM. Some Asian buyers may also be involved in the US or European coatings business, including the above assets or Jotun, Hemple, Ben Moore or Bex.
PPG has recently made some small acquisitions. Do you expect further action?
PPG will continue to pursue and execute opportunistic acquisitions. Recent deals with Whitford, SEM Products and Hemmelrath are all small, secure add-ons. With few disadvantages, PPG can leverage its infrastructure to drive top-line growth and cost savings for these goals. The deals won't be a substantial "pusher" for the company, but PPG has recently focused more on dissident activist shareholders. They go through a lot of work to validate their current business model and prove that keeping the business intact.
most European or North American companies are involved as buyers in larger initiatives. Can we expect further and more aggressive initiatives from Asian coatings companies? As the number of immigration enquiries increases, we fully expect that large Asian coatings companies will continue to actively seek assets in Europe and North America. Our company has sold two companies to Asian buyers in the past 12 months. In both cases, they paid the full value and were able to keep up with the process - both of which have historically been seen as challenges for buyers in the region. Nippon Paint's acquisition of Dulux Group and KCC Corp's acquisition of Momentive are examples of recent high-profile and successful deals by Asian buyers.