The paints and coatings sector is consolidating to support growth based on increased efficiencies and greater leverage with suppliers and customers.
Like most of today's chemical industry, the paints and coatings sector is going through a period of major consolidations to support growth, increase efficiencies and gain greater leverage with suppliers and customers.1 The question is whether consolidation will remain a viable growth strategy for this sector in the face of volatile prices, anti-monopoly laws, nationalistic concerns, and other factors worldwide.
According to analysts at MarketsandMarkets, the paints and coatings market is projected to grow from US$160.54 billion in 2017 to US$209.36 billion by 2022, at a CAGR of 5.45 percent.2
Currently, Asia accounts for 52 percent of the volume and 45 percent of the value of the global coatings market.3 Asia is also the fastest growing market. Rising population levels, more middle class consumers, massive infrastructure developments and widespread urbanization in the region have increased demand for paints and coatings for buildings, public infrastructures, individualized living spaces, automobiles, and a growing number and variety of consumer products. In 2017, the Asian coatings industry was estimated to have grown by 5.7 percent in volume and 6.3 percent in value.4 Not surprisingly, the largest coatings market in Asia is China, with 56 percent of the market and a value of US$53.3 billion.5 The next largest Asian markets are India and Japan.
Market growth in the US, Western Europe, and Japan will remain steady but at a slower pace, corresponding to the overall health of the regional economy. Overall demand from 2016 to 2021 is expected to increase at an average annual rate of 3 percent in the US and 2 percent in Western Europe.6
For paints and coatings, consolidation has become a long-term trend, especially in Western markets with limited organic growth. In North America, for example, the industry has been consolidating for decades. In certain end market segments, fewer than ten players (and in some cases, five or less) control over 90 percent of the market. In most other North American markets, fewer than ten companies maintain at least 75 percent of value.7 Worldwide, however, the markets are still very fragmented overall. According to 2016 data gatheredby PPG, the global industry is led by ten companies, but approximately 50 percent of the global market is controlled by smaller companies, many of them at the regional or local level.8
In 2017, the biggest deal for paints and coatings was the Sherwin-Williams/Valspar merger. Sherwin-Williams has a prominent market position in architectural paint in North America, South America, China, Australia and the UK. In industrial coatings, the combined company will be a global market leader in packaging coatings, coil coatings, general industrial coatings and industrial wood coatings.
Successful consolidations can help paints and coatings companies to seize growth opportunities, enter new markets, improve capabilities, increase efficiencies through scale or improved processes, diversify their products, and rationalize their asset portfolios. However, challenges remain for a paints and coating company considering a consolidation. As with any industry, a seller’s market can turn into a buyer’s market before the deal is done.
Consolidations will remain a favored strategy by suppliers, manufacturers and customers across the industry. In many ways, it all comes down to the benefits of scale, including brand equity, purchasing leverage, pricing power, and production efficiencies.
1 Hunt for earnings growth reshapes chemical sector, Financial Times, 30 May 2017, https://www.ft.com/content/d9c7bff8-41e4-11e7-9d56-25f963e998b2
3 Global Coatings Market Overview
4 Global Coatings Market Overview
5 Study Values Global Coatings Market at Over US$141 Billion in 2015; Global Coatings Market Overview
6 Paint and Coatings Industry Overview
7 Rivalry at the Top? Growing Concentration in the Coatings Industry, Coatings World, 5 July 2017, https://www.coatingsworld.com/issues/2017-07-01/view_features/rivalry-atthe-top-growing-concentration-in-the-coatings-industry/
8 PPG presentation, 28 November 2017. Sources cited: Kusumgar, Nerlfi, & Growney; company annual reports, PPG analysis