In the drive to reach growth objectives, or to maintain and enhance “critical mass”, mergers & acquisitions (M&A) has been a theme for the chemical distribution industry for years. The industry leaders (by size and geographic reach) were all built through a series of such transactions. As the practice is further trickling down to the smaller and mid-sized company layer of the sector, and more distributors espouse external growth options, it is worthwhile to spend some time on a reflection of recent events in this context.

Although M&A activity has been slowed down to some extent by the Covid-19 pandemic, the basic drivers are still relevant. Thus, it can be expected that industry consolidation will even be accelerated by the effects of the global lockdown that has been causing a global economic crisis, disruptions in international trade, production outages, and thus stressed supply chains.

Other factors such as the digital and ecological transformation of the chemical industry and its impact on value chains, trade conflicts, or Brexit will even increase the need to enhance critical mass and establish more widespread networks – and thus build more resilient businesses.

CHEManager asked executives and industry experts to share their views on the rationale for M&A activity in chemical distribution. We proposed to discuss the following aspects:

• Have the key drivers for mergers & acquisitions in the chemical distribution industry changed due to the Corona crisis?
• Will industry consolidation and thus M&A activity continue or even speed up after the Corona crisis?
• Do you want to play an active role in the industry consolidation, and if so, what is your strategy?

Christopher Erbslöh: Growth in terms of turnover or volume is not our measure of success. We measure our success by looking at the solutions we can provide to our partners - customers and suppliers -. M&A might provide an option, if it helps us to gain resources or scope needed to provide solutions short term, which would otherwise take a long time to build. We thus tend to take a more opportunistic approach to M&A rather than having the buy-and-build approach as part of our core strategy.

“More industry consolidation may not be needed,
but it will continue.”

C.H. Erbslöh and the LEL Alliance will continue with this approach, as we have a good set up for organic growth in our key geographic market, which is Europe. Other players in Europe will, however, continue to drive the trend for consolidation, not only in Europe, as their needs and strategies are rooted in different goals and philosophies. Especially stock-listed and investor-backed groups will continue and even accelerate their M&A activities globally, as they can only feed the hunger for ever growing profitability from their investors by increasing their geographical reach, and industries served, at a pace unachievable without acquisition. As long as the capital markets and interest rates do not change dramatically this will probably continue long-term, at altering paces.
More industry consolidation may not be needed, but it will continue, and it will offer opportunities to all distributors, suppliers and customers in the industry, no matter what their size. The winners of the consolidation process will be those that uncover the opportunities, find solutions, and turn them into successes.