Staying local: last year was perhaps not as monumental in terms of mergers and aquisitions...

From the global whirlwind of 1998 and 1999, which had swept away such names as Courtaulds, Herberts and Hoechst, merger and aquisition activity (M&A) activity in 2001 tailed off into a series of local eddies.

Bold transatlantic mega-deals have given way to more traditional transactions,

America

The American economic downturn, with its deleterious effect on corporate revenues and profits, cast a pall on M&A pursuits through most of the year. The year really belonged to the second and third-tier players. The top 10 confined themselves to a few isolated purchases in regional markets. Instead of Akzo Nobel, ICI, PPG and BASF, the baton was held by Altana, Becker and Arch.

For Akzo Nobel, restructuring brought only one or two acquisitions, several divestments but also sizeable greenfield site expansions in China and Vietnam.

Apart from inaugurating two fully-owned coatings plants in China, commissioning a fusion-bonded epoxy powder coating plant, a heavy-duty coatings plant in Texas and the first powder coatings plant in Vietnam, Akzo Nobel confined its acquisitions to buying the remaining 20% interest in its non-stick coatings joint venture with the US-based company CCC.

There were divestments as well. The Sneek paint factory in the Netherlands was sold to CPS Color, the Anaglypta wallcoverings plant in Darwen to Imperial Home Decor, the printing ink business to a management buyout, while the decorative paint facility in Haltwistle, UK, was closed. Growth was found in the East and not in the markets of the West.

Further afield

ICI, too, looked further afield for growth -- buying a 70% interest in Vina Paint in Vietnam as well as the 102-store Argentinian paint distribution chain Grandes Pintuerias del Centro. Hit by the first recession in a decade, American multinationals were hardly more adventurous.

Sherwin-Williams acquired decoratire coatings specialist Mautz Paint, while Valspar bought industrial lines from Benjamin Moore's Technical Coatings subsidiary coil coatings, spray-applied door coatings and rigid packaging coatings.

PPG, in contrast, gave M&A a miss this year, while DuPont disposed of its CorMax protective coatings and linings to its American distributor Dudick, but also bought the remaining 50% in its Australian automotive joint venture CrodaHerberts.

It was the second and third-tier players who came into their own in 2001. In Europe, opportunities arose to expand in a number of desirable niches. Having sold its decorative paint arm Alcro-Beckers to Tikkurila in November 2000, Becker now proceeded to advance in several specialist industrial sectors. Acquisitions in 2001 included:

* The Italian powder coating supplier for coil Progetto Due;

* The UK wood specialist Granyte;

* The industrial coatings line of Blancomme with a 15% share in the French powder coatings market.

The German holding company Altana -- which had acquired Joachim Dyes in Germany and Syntel in Italy in 2000 -- also did well during 2001, amassing:

* Blancomme's coil and can coatings business in France;

* Sterling Technology, a manufacturer of insulation coatings in the UK;

* Siderius, a producer of can, coil and foil coatings, in Italy.

Spin-off

Arch Chemicals, the 1999 spin-off from the Olin Corp which had acquired Hickson International in 2000, managed to fill several additional market niches in 2001. In the UK the company bought the Industrial Division of Humbrol as well as Butler Mabbutt & Wrighton, a producer of finishes for leather and plastics. This was supplemented by the American purchase of the wood treatment business of Walker Bros from RPM.

Of particular importance is the further consolidation of the European decorative paint market, brought about by the acquisition by Sto of the majority of Ispo, the facade paint business, from Dyckerhoff. Sto, thought to be number five in the European decorative market, will gain additional European subsidiaries as well as Ispo's German distribution network.

Consolidation

The consolidation of the decorative paint market in Scandinavia -- which had culminated at the end of 2000 in the acquisition of Alcro-Becker by Finland's Kemira and of Hygaea of Denmark by Finland's number two, Teknos -- was set for further integration into the Nordic chemical market during 2001.

The Swedish equity group Industri Kapital, which had amassed and restructured the former Dyno of Norway and Perstorp of Sweden into Dynea and Sydsvenska Kemi as well as acquiring CPS Color from Kemira, now made a bid for the majority interest in Kemira.

Such a Nordic chemical empire would have created a 4.3bn [euro] group employing 16,000 people in 40 countries, with further restructuring no doubt to come.

Plans collapsed when the Finnish State, bowing to parliamentary and trade union pressure, decided not to sell Kemira after all. The implications of such a Nordic alliance would have reached much further afield than the chemical industry of Scandinavia. The traditional motives for buying and selling companies -- be they additional market share, succession problems or financial necessity -- managed to create a number of M&A eddies at the national level. In the UK, the year brought the market exit of Philip Johnstone, who after a four-year stint as independent paint manufacturer and retailer, gave way to a managementment buy-out. As a result PJ Paint became Buckingham Paint.

Eddies at the grassroots

In Germany, the upwardly mobile Feidal bought decorative paint and adhesive manufacturer Wit & Janssen. Swiss ambitions turned to Germany as well, with IGP IG Pulvertecknik (part of Dold) buying the Landshuter Lackfabrik. Another family-owned enterprise, the FLH Group, acquired the Swiss woodcare specialist Pintol. In contrast, the Swiss Mader Group merged with the French Soficor Group -- facilitated by the fact that Mader France had belonged to Soritec of France since 1992, and to its successor Soficor since 1999.

Such local eddies had their counterparts in other countries. In Italy, for instance, Boero bought out its joint venture partner Attiva, a manufacturer of architectural and marine paints.

In the US, Spraylat bought Valspar's mirror coatings business, while Sico of Canada was busy on three fronts: adding Chemcraft's industrial metal coatings, in the US the remaining 51% in its joint venture partner Sicorel in Mexico as well as architectural paintmaker Betonel in Canada. Table 1 summarises the key coatings acquisitions in 2001.

Printing inks and adhesives

The printing ink market was hardly more eventful. Key transactions included Akzo Nobel's divestment of its 190m [euro] printing ink business to its management backed by the NeSBIC Buy Out Fund. Other transactions included the purchase of Simpex of Germany by BASF, the acquisition of Bousfield in the UK from the Amberley Group by Runway Ventures and Rothchild, and the entry of Flint Ink into the Indian printing ink market by buying a 51% stake in Bangalore-based Incowax, a supplier of flexo and gravure inks.

Forbo of Switzerland, Henkel of Germany and Rohm and Haas of the US were the principal acquisitions beneficiaries in the adhesives market. Forbo, having previously bought through its German subsidiary the shoe adhesives business of Sika Tivoli, is currently negotiating with US-based Reichhold (part of the Japanese DIC Group) to acquire Swift adhesives. Henkel, the world's foremost adhesives group, proceeded to add Vnone & Boeri, a specialist in automotive adhesives in Italy, and Kertscher Bauchemie, a manufacturer of building adhesives in Germany.

Rohm and Haas, whose adhesives business had been greatly expanded by the 1999 merger with Morton, has now added the flexible packing business of Benjamin Moore's Technical Coatings subsidiary.

Joint ventures

Traditional joint ventures -- designed to share capital investment risks and facilitate an entry into difficult to penetrate foreign markets -- have taken on a curious twist.

Partnerships of all kinds are now considered essential for success in the global economy. Both large companies and small have spawned a variety of alliances, extending from manufacture and distribution to technology and marketing. The liberalisation of Asian markets has changed the emphasis from joint venture partnerships to fully-owned Western enterprises. Technical and marketing alliances have sprung up instead.

Alliances

Akzo Nobel's `strategic alliance' with Mitsubishi Rayon is an example of technical cooperation in the field of high-performance resins. So is the technical partnership between PPG and Isamu Paint in aqueous basecoats. Other global commercial and technical alliances include those between CPS Color and Rohm and Haas, and between johnson Polymer and Essential Industries.

An altogether different approach to supply chain cooperation in the car repair sector has been taken by Akzo Nobel, by forming a joint venture with CCR, the French Repair Consultancy Company. The new company ABS (Acoat Bodyshop Services) was formed specifically to direct repair work from insurance companies, fleet owners and car leasing companies to Akzo Nobel's established repair network, together with technical training and marketing support.

Joint ventures

Traditional joint ventures have by no means vanished. Those between Dow and Reichhold in speciality latexes and between Atofina and Albemarle in organotin intermediates are cases in point. So is that between Bayer and the Honshu Chemical Industry for the production of bisphenols at Bayer's Bitterfeld site, illustrating the advantage of sharing capital expenditure.

Defensive alliances in the face of fierce competition are also becoming more common, particularly in the East. The pre-coat metal joint venture, merging the respective businesses of Nippon Paint and DIC, is just one example of a new trend, which many other companies are set to follow.

That ever-changing and fluid field of chemicals was marked during the year by abortive mergers, on-going demergers, acquisitions in progress, pending divestments and announced splits. Some of this activity was a direct consequence of the fall-out of previous M&A activities -- selling off assets to meet regulatory requirements of simply completing unfinished business.

The merger between Degussa-Huls and SKW Trostberg (occasioned by the union of the two parent companies EON and REW) resulted in a brand-new Degussa, an altered corporate profile and several disposals, among them Phenol Chemie to Ineos, the DMC2 metals and catalyst business to OMG and Rohm Speciality Acrylics to Vanlico.

Much of the currently still on-going M&A negotiations arose from earlier acquisitions or divestments. Montedison's purchase by the Franco-Italian Italenergia has brought its Ausimont subsidiary on to the market. A number of bidders, of which Solway appears as the front runner, have emerged. A similar unfinished battle is being waged over control of Rhodia, with DSM and Clariant as the leading contenders. In addition, a number of conventional transactions involving resin or colourant suppliers to the paint industry are found in Table 2.

The year in perspective

The continued flurry in M&A activity in the chemical field contrasts sharply with the more modest acquisition record in coatings. Transactions in coatings tended to be fewer, smaller and mainly on the national or regional level, fielded by second-tier players. Globalisation was enjoying a temporary lull, as the top groups were busy digesting their previous acquisitions.

Nor should the economic downturn be ignored in dulling the appetite for chunky additions. These local transactions can provide the building blocks for future empires helping them to leap-frog to growth.

Table 1: key coatings acquisitions in 2001

Buyer                    Acquired company         Business Area

1) Europe

Akzo Nobel               CCC Non-stick JV (USA,   Non-stick coatings
(Netherlands)            Italy and India) --
                         remaining 20%

Altana (Germany)         * Blancomme's coil and   Coil and can coatings
                         can coatings (France)
                         * Sterling Technology    Insulation coatings
                         (UK)
                         * Siderius (Italy)       Coil, can and foil
                                                  coatings

Arch Chemicals (USA)     * Industrial division    Coatings
                         of Humbrol (UK)
                         * Butler Mabbutt &       Leather, wood and
                         Wrighton (UK)            plastic

Becker (Sweden)          * Blancomme's            Liquid and powder
                         industrial coatings      coatings
                         (France)
                         * Granyte (UK)           Industrial wood
                                                  finishes
                         * Progetto Due (Italy)   Powder coatings

Boero (Italy)            Attiva (Italy) --        Decorative and marine
                         remaining interest in    cottages
                         JV

FLH Group                Pentol AG                Woodcare
(Switzerland)            (Switzerland)

IGP IG                   Landshuter Lackfabrik    Powder coatings
Pulvertechnik            (Germany)
(Switzerland)

MBO (IUK)                PJ Paints (UK)           Decorative coatings

Sto AG (Germany)         Ispo (Germany) -- 60%    Decorative coatings
                         from Dyckerhoff

2) North America

Akzo Nobel               MAC Specialty Coatings   Vehicle refinishes
(Netherlands)            (USA)

Arch Chemical (USA)      Walker Bros (USA)        Wood treatment
                         -- from Consolidated
                         Coatings/RPM

Duduck (USA)             DuPont's CorMax          Protective coatings
                         protective coatings
                         line

Sherwin-Williams (USA)   Mautz Paint (USA)        Decorative paints

Sico (Canada)            * Betonel (Canada)       Architectural paints
                         * Chemcraft (USA)        Industrial metal
                                                  coatings
                         * Sicorel (Mexico) --    Industrial coatings
                         remaining 51%

Spraylat (USA)           Valspar's mirror         Mirror coatings
                         coatings (USA)

Valspar (USA)            Benjamin Moore's         Coil coatings, rigid
                         industrial coatings      packaging coatings
                         line (USA)               and spray -- applied
                                                  door coatings.

3) Asia Pacific

Dainippon (Japan)        Tannabe (Japan) --       Coatings
                         merger

DuPont (USA)             Croda Herberts JV        Automotive OEM
                         (Australia) remaining
                         50%

Ferro (USA)              LG Chem's Powder         Powder coatings
                         Coatings (South Korea)

ICI (UK)                 Vinna Paint (Vietnam)    Coatings
                         -- 70%

Kansai Paint (Japan)     BASF NOF (Japan)         Marine paints
                         merger of marine
                         coatings
Selected acquisitions in the chemical field

Buyer                   Acquired company          Business Area

Akzo Nobel              Quimica Borden            Industrial resins and
(Netherlands)           Ecuatoriana (Ecuador)     adhesives

Ashland (USA)           Neste Polyester (from     Unsaturated poly-
                        Dynea -- Sweden)          esters and gelcoats

Atofina (France)        Uvithane line from Rohm   Oligomers for
                        & Haas                    coatings, inks and
                                                  adhesives

Bakelite (Germany)      * Dyno Industrial Resin   Resins
                        business (Finland)
                        * Dynea's phenolic        Phenolic resins
                        resins in Germany

Baxenden (UK)           Akeros's saturated        Saturated polyesters
                        polyester business from
                        Akzo Nobel

Ciba (Switzerland)      EFKA (Netherlands)        Additives

Cray Valley (UK)        * Croda's resin           Resins
                        business
                        * Dynomer (Malaysia)      Unsaturated poly-
                                                  esters
                        * ITIP (Italy)            Gelcoats

Dow Chemical (USA)      * Ascot (UK)              Speciality chemicals
                        * Enichem's PU Division   Polyurethanes
                        (Italy)
                        * Agricultural            Agri business
                        chemicals from Rohm &
                        Haas (USA)

Goldman Sachs and       Cognis from Henkel        Speciality chemicals
Shroder Ventures (UK)

Henkel (Germany)        Atofina's metal           Speciality chemicals
                        treatment business

Kemira (Finland)        * Cargas Blancas          Calcium sulphate
                        (Spain)                   pigments
                        * Vinings Industries      Speciality chemicals
                        (USA)                     for pulp and paper

Kerr McGee (USA)        Ti[O.sub.2] plants from   Titanium dioxide
                        Bayer in Uerdingen and
                        Antwerp -- remaining
                        20%

PolyOne (France)        Transcolor (Spain)        Colour concentrates

Sensient Technologies   Crompton's industrial     Industrial colours
(USA)                   colours business (USA)

Solutia (USA)           BASF's acrylic resins     Resins
                        business (Germany)

Sydsvenska Kemi         Perstorp (Sweden)         Chemicals
(Norway)

Tikkurila (Finland)     Eastman's Finnish         Resins
                        resins plant

Yule Catto (UK)         Harlow Chemicals (UK)     Resins and emulsions
                        -- remaining 50%

Helma Jotischky is principal research officer at the UK's Paint Research Association, 8 Waldegrave Road, Teddington. Middlesex, TW11 8LD. Tel: +44 20 8614 4800, Fax: +44 20 8943 4705, Email: h.jotischy@pra.org.uk