Industrial players lower costs, increase profits and enter new markets.
Recent mergers and acquisitions (M&As) by major industrial gases manufacturers have focused on optimizing and strengthening their positions in core markets such as the US. These companies are finding new value in synergies that leverage innovation and technology, improved service, reduced distribution costs, greater efficiency and improved access to markets.
For over a century, industrial gases have supplied essential ingredients for a host of products and manufacturing processes. Although relatively small compared to the chemical industry, the sector is essential to a significant part of the global economy. In the US, industrial gases support products for industries that account for 25 percent of the national GDP.
The sector has grown to become relatively consolidated, with a small number of large players dominating existing markets. Only the largest companies have the technology required for efficient processes that ensure a competitive advantage. Large companies can also provide backup supplies with the ability to ship gas from one plant or another depending on market demand.
Current sector growth is estimated at a CAGR of more than 8 percent between 2016 and 20201, so reliance on organic growth to increase value is a viable option for many companies. However, M&As remain a favored growth strategy across the sector. M&As are especially attractive because of potential synergies, where the benefits of the combined company in terms of business value become more than the sum of the two companies before the transaction.
Synergies can lower costs by reducing headcount, consolidating administrative and manufacturing overhead, and gaining greater bargaining power over suppliers, distributors and other business associates. Synergies can also boost revenues by opening access to new markets, providing cross-selling or up-selling opportunities to existing markets, leveraging brand equity to strengthen and expand customer relationships, sharing supply chain and distribution infrastructure, and reducing or even eliminating competition through market dominance.
The acquisition of Airgas by Air Liquide and the merger of Praxair and Linde offer two recent examples of M&As with significant potential for synergistic value.
Air Liquide offers a wide range of offerings, from packaged and bulk gas to on-site supply and hardgoods. Air Liquide also brings a global technology portfolio backed by their US R&D center in Delaware, as well as advanced supply chain capabilities. For its part, Airgas has developed the most advanced multi-channel distribution network in the US, including e-commerce and telesales capabilities. More importantly, Airgas provides a strong presence in US markets.
Praxair is a leading industrial gas company in North and South America. Linde is a multinational organization based in Germany, now supplying industrial, process and speciality gases to markets in more than 100 countries. Designed as a merger of equals, this transaction unites Linde's leadership in engineering and technology with Praxair's efficient operating model.
© 2018 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.