Chemical distributors act as a link between chemical producers and end customers in every possible segment of the processing industry. The chemical distribution market is highly fragmented. Worldwide, there are more than 10,000 chemical distributors operating at local, regional and global level. Brenntag is not only the market leader in this environment; it also sees itself as an active player in the process of market consolidation. Both sides of the value chain – that is, chemical producers and end customers – are keen to reduce the number of business partners they deal with and seek reliable ones that offer a one-stop shop. Alongside organic growth, acquisitions form the second key pillar of Brenntag’s growth strategy.
We have a long history of successful acquisitions spanning many years. Since our IPO in 2010 alone, we have made more than 40 acquisitions representing a total investment of some EUR 1.5 billion. Our reputation, strategic approach, excellence in execution and detailed knowledge of local markets make us a preferred partner for sellers.
Close collaboration between different units within the Group is essential to a successful acquisition process. Our local management teams know their respective markets and so can find potential acquisition targets. Anthony Gerace, head of our global M&A activities, manages and steers the further process together with the Corporate M&A team based at our headquarters in Essen, whose tasks include conducting careful due diligence and integrating the acquirees into the Brenntag Group.
ANTHONY, WHY ARE ACQUISITIONS AN IMPORTANT PART OF BRENNTAG’S STRATEGY?
ANTHONY Acquisitions are value accretive for our Group and assist in leveraging and accelerating our organic growth. For example, we have entered the Asian market through several key acquisitions and established a platform that has successfully attracted new suppliers and customers in the region. In less than ten years, we have been able to build a business that employs more than 2,000 people and operates in 16 Asian countries. This would not have been possible in this relatively short timeframe on a grass roots basis.
BRENNTAG PURSUES STRATEGIC OBJECTIVES IN MAKING EACH ACQUISITION, BUT DOES THERE NOT COME A POINT WHERE THE OPPORTUNITIES IN THE MARKET HAVE BEEN EXHAUSTED?
ANTHONY We basically pursue three strategic objectives when evaluating our acquisition targets: realize economies of scale and improve efficiency, expand our geographic coverage and improve our product portfolio. We have in fact largely achieved one objective already; namely, broad geographic coverage. Brenntag now has very few significant white spots on the world map. Having said that, the opportunities in this market are far from exhausted.
The market is still very fragmented and there are countless mid-sized chemical distributors that, while successful, do not have the scale to compete long-term; it is precisely these companies that are of interest to us.
Anthony Gerace and the Corporate M&A team continuously discuss current and future projects in our M&A pipeline.
IF THESE COMPANIES ARE SUCCESSFUL, WHY SHOULD THEY GIVE UP THEIR BUSINESS ACTIVITIES?
ANTHONY In recent years, these companies have experienced that it is becoming ever more difficult for them to meet all channel requirements. Customers demand end-to-end solutions from a single source. They want to be supplied with a broad range of products at very short notice. Suppliers want to reduce complexity and risk by working with fewer and fewer distributors. Regulatory requirements are increasingly burdensome. It is often the case that these companies contact us on their own initiative, wanting to ensure that their employees have the long-term opportunity for continued personal and professional growth that Brenntag offers.
AS AN ACQUIRER, WHAT ADVANTAGES DOES BRENNTAG HAVE OVER COMPETITORS?
ANTHONY Our value proposition, commitment to safety, service excellence and our employees, and in short, our brand promise, make Brenntag a desirable potential partner in the eyes of the acquired companies. Furthermore, given that we have a long-standing and successful track record of integrating and subsequently growing the businesses that we acquire, sellers feel very comfortable working with us. Finally, if you were to reflect upon the leadership of the organization, you will see that many key roles are held by individuals that joined the organization through acquisitions. Collectively, this sends a very positive message to the market.
WHAT DOES BRENNTAG’S M&A STRATEGY LOOK LIKE IN THE COMING YEARS?
ANTHONY We will continue to allocate a significant amount of our group cash flow towards our acquisition programme. We will also continue to follow our strict adherence towards satisfying our strategic objectives while remaining disciplined with respect to our valuation expectations. Our sweet spot in the market has been the small to mid-sized target and my expectation is that we will remain focused on that segment of the market in the coming years.