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Investment Analysis of the North American Adhesives and Sealants Market : Specialty Adhesives Segment is the Key Focus for Investment

  • December 2014
  • 48 pages
  • Frost & Sullivan
Report ID: 2575141

Summary

Table of Contents

Executive Summary

•The North American adhesives and sealants market has been gradually recovering from the 2008 financial crisis. Three end-user industries—construction, automotive, and packaging— have been fueling demand.
•Hazard-free and sustainable products are in demand because of growing concerns about health and wellness and the environment. Sustainability is increasingly being mandated; companies are developing products that meet standards globally.
•Most product segments are commoditizing. Companies are focusing on specialty, high-performance adhesives to differentiate themselves and improve customer retention.
•Horizontal mergers and acquisitions (M&As) have helped large companies bring about industry consolidation and hedge against competition. Many small manufacturers of specialty adhesives were acquired by larger companies during the study period.
•M&As have been an important exit option for private equity (PE) and venture capital (VC) investors.
•Although well-entrenched companies have created high entry barriers, foreign competitors undertook many cross-border acquisitions to enter the North American market during the study period.
•Key financial ratios remained stable during the study period. Gross margins varied between x % and x % depending on the extent of commoditization in a product segment. Selling, general, and administrative (SG&A) expenses have been the biggest constraint on net margins. Labor costs are highest in North America, further shrinking net margins compared with the global average.
•The industry is capital intensive, but given its stable revenue the return on these assets depends on process control and managerial efficiencies. Since most companies have a global presence, they are able to hedge against domestic economic cycles and generate stable revenue throughout the year.
•Working capital management is a key factor for financial success given the strong bargaining power of both suppliers and buyers. Most companies in this industry rely on their large cash reserves rather than on contractual hedging to manage their working capital requirements.

Key Terms and Definitions

•Adhesive: Any chemical compound that fastens 2 or more surfaces together.
•Sealant*: A chemical compound used to seal gaps between substrates to make them airtight or watertight.
•Growth Capital/PE: A private placement transaction in which an investment is made in a mature or middle-market stage company with the purpose of aiding its growth.
•VC: A private placement transaction that involves an investment in an incubation or start-up, early, mid, late, or emerging stage company
•M&As: An aspect of corporate strategy, corporate finance, and management by which corporations legally unify ownership of assets formerly subject to separate controls.
•Volatile Organic Compound (VOC): A chemical compound that easily evaporates at low temperature. VOCs are considered hazardous to human health and the environment
•Silane Modified Polymer (SMP): A water-curable, hybrid polymer comprising a polyurethane base and silicone compounds. SMPs are high-performance, structural adhesives that are shock and impact resistant, and are also known as silyl-modified polymers.
•Corporate Average Fuel Economy (CAFE): US regulations to improve vehicle fuel economy.
•Body-in-white (BIW): The automotive manufacturing stage in which basic metal components are welded together to make the vehicle frame.
•ASTM International: An organization that develops and publishes international technical standards for a wide rage of materials, products, processes, systems, and services.
•US Environmental Protection Agency (EPA): A federal agency created to protect health and the environment.
•Product Stewardship: A voluntary initiative in which every entity involved in a product’s life cycle ensures the least impact on environment, health, and safety.

Who Will Benefit?

•Adhesive and sealant manufacturers
•Chemical companies
•PE investors
•VC investors
•Fund managers
•Retail investors
•Sovereign wealth funds
•Hedge funds
•Insurance funds
•Other members in the investing community

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