Construction Products Consolidation
Buy buy buy
Hey, it’s a weird month of my different newsletter issues coming out on Fridays. Since this is technically the fourth Friday of the month I’m going to stay consistent and talk about the mergers and acquisitions in the chemical industry space or at least the ones I find interesting.
Construction Products
One place that has gotten some significant attention in the past week is in the realm of construction products. Carlisle Companies has acquired Henry for about $1.5 billion or about 12x EBITDA. The companies expect to save $30 million (read layoffs/cost cutting/streamlining) over the next four years. Additionally, Sika has bought Hydrotech for an undisclosed amount, but Hydrotech is a company that deals with waterproofing rooftops, specifically green rooftops.
You might be thinking, why is a polymer chemist writing about construction products here? The short answer is these transactions actually influence my day job of being a chemist.
The longer answer is that the majority of construction products utilize polymers and polymer science and engineering play a critical role in global infrastructure and building longevity. Protecting rebar and concrete from water intrusion is important and after a building collapsed in South Florida in the last few weeks this is becoming a more pressing issue in other cities. We rely on plastics and polymers like polyethylene and polypropylene to protect the foundations of massive towers, which are reliant on the compressive and tensile strength of rebar reinforced concrete. If water can enter a concrete structure and start corroding the rebar then there can be devastating consequences to building integrity.
We don’t just use polyethylene and polypropylene in construction products. We use epoxy resins, polyureas, polyurethanes, rubber, acrylics, and silicones to name a few.
These two acquisitions represent a consolidation of the waterproofing construction products market, which is very fragmented compared to the concrete additives market. I think over the next few years we will see more consolidation and I also expect that waterproofing will become a more commonplace name in households as we start to see our infrastructure slowly succumb to water damage and corrosion.
The Trucker reported on the closure of the I-40 bridge that spans the border of Arkansas and Tennessee:
The 48-year-old Interstate 40 bridge between Arkansas and Tennessee was rated as being in “fair” condition with a sufficiency factor of 58% before a “significant” fracture was discovered on May 11. The structure has remained closed to traffic since that time as crews work to repair the damage, first stabilizing the bridge to accommodate the equipment needed and then removing and replacing the damaged portion of a 900-foot structural beam.
Investors in waterproofing companies are waiting for the Biden infrastructure bill to become law.
Rubber
Exxon sold their Santoprene business to Celanese for $1.15 billion at the very end of June. What I see here is somewhat divergent from my thesis last year that oil companies would try to move downstream in an effort to diversify away from oil and become chemical companies. With shareholders demanding a change in how ExxonMobil does business I wonder if moving to alternative energy generation technologies and carbon capture will be their future.
Santoprene products are used to crosslink various rubber formulations for end markets such as automotive and construction. When rubber was first crosslinked or vulcanized elemental sulfur was the main route and chemists have since developed a whole array of different rubber crosslinkers capable of imparting specific end properties and process improvements.
Coatings
Private Equity company Advent sells Allnex for $4.75 billion to PTT Global Chemical. PTT Global Chemical is based in Thailand and their business is primarily in oil distillates and refining. I think the acquisition of Allnex represents a vertical integration play here for the Thai state owned company. PTT already specializes in making aromatics and phenol is a major input and cost for Allnex, which represents the coatings business from Cytec merged with Nuplex.
PTT Global Chemicals does represent the type of transformation strategy that I had proposed last year and C&EN’s Alex Tullo proposed in 2019. From Tullo’s reporting in 2019:
The trend is so strong, says Bryan Glover, general manager of Honeywell UOP’s process technology and equipment business, that internally, UOP uses the term “refinery of the future” to refer to flexible technologies that enable refining complexes to make a wide variety chemicals. “The best outcomes result when you can match the molecules to the best market opportunities,” he says.
Moving from oil distillates and refined products one step down from oil is relatively simple in terms of the grade of material, volumes, and managing inventory compared to a specialty chemicals producer like Allnex. PTT Global Chemical might realize that it’s not that easy to be a fully integrated commodities and specialty chemicals company.