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  5. > Investment Analysis of the European Adhesives and Sealants Market : Specialty High-performance Adhesives Top Investment Focus

Executive Summary

•The European market for adhesives and sealants is characterized by positive correlation between end-user industries and economic cycles, high rate of commoditization of product segments, low scope for growth, intense rivalry among a few large companies, stable revenues, and industry consolidation.
•The market was significantly impacted by the global economic crisis in 2008 causing a setback in revenues and growth for many key end-user industries like construction, woodwork and joinery, paper and packaging, and automotive. A further setback was experienced during the eurozone debt crisis, which again hampered activity in these end-user market segments.
•Recovery from the crisis period was slow but steady. This recovery was spearheaded by growth in the 3 largest market segments: Construction adhesives, automotive adhesives, and packaging adhesives.
•Specialty adhesives have become the key focus area for investment given the large scope for differentiation, higher profitability, and enhanced customer retention. Developing high-performance, structural adhesives requires significant investment in R&D.
•M&A has mostly been horizontal in nature wherein large companies acquired small- and medium-sized firms operating in specialty adhesives.
•The mature nature of the market and its low scope for rapid growth makes it unattractive for PE and VC investors, yet most companies are still held by PE and VC investors which can either mean a lack of exit options or stable returns on investment. M&A is an important exit option for these investors.
•End users have moved away from off-the-shelf adhesives and seek customized bonding solutions for their unique requirements. Therefore, end users must maintain close R&D collaboration efforts.
•Increasing scrutiny by regulatory authorities concerning environmental and health effects has also increased the need for R&D. Companies strive to develop chemical formulations that comply with several regulations across different countries.

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&A: 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 and 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; high-performance, structural adhesives that are shock and impact resistant, and are also known as silyl-modified polymers.
•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; also known as ‘extended producer responsibility’.
•Fédération Européenne des Industries de Colles et Adhésifs (FEICA): Translates to “European Federation of Industries Glues and Adhesives” which is an association of European adhesives and sealants manufacturers
oFEICA is considered the acting voice of the adhesives and sealants manufacturers in Europe. It actively supports and promotes the interests of the different stakeholders in this industry by influencing European Union (EU) legislation and public opinion.
•Regulation on Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH): An EU legislation which came into effect on 1 June 2007
oREACH monitors and regulates the production and use of chemical substances that can have an adverse impact on health and the environment.

Who Will Benefit?

•Adhesives and sealants manufacturers
•Chemical companies
•PE investors
•VC investors
•Fund managers
•Retail investors
•Sovereign wealth funds
•Hedge funds
•Insurance funds
•Other members of the investing community

Sources

•Frost & Sullivan in-house research expertise
•Established business and financial databases, such as Capital IQ
•Annual reports of companies
•Published news
•Press releases

Three Major Industry Segments Fuel Demand for Adhesives and Sealants
The European market for adhesives and sealants is dominated by x major end-user industry segments: construction adhesives, automotive adhesives, and paper and packaging adhesives. They together capture about x % of the market in terms of revenue and about x % in terms of tonnage consumed. During the study period, some key trends and challenges in these end-user industries directly impacted growth in the adhesives market.

Construction Adhesives Segment:
Steady Recovery in Construction Activity Occurs Post Financial Crisis
Construction work has been conservative and slow in growth since 2009 which marked the aftermath of the global financial crisis. The eurozone debt crisis further discouraged construction activity. The European construction industry is subject to significant national variances, and demand for adhesives and sealants is directly related to activity in the construction industry. Germany led the recovery in demand for construction adhesives. France, the United Kingdom, and Italy follow Germany in terms of intensity of construction activity which, in turn, fueled the demand for construction adhesives during the study period.

R&D and Brand Promotion Play an Important Role in Customer Retention
Most construction adhesives are commoditized, and competition is predominantly price based. The scope for differentiation is limited, so companies spend considerably on R&D to match the dynamic requirements in the construction adhesives market. Adhesives with special characteristics encourage the pro-active participation of customers in choosing one company over another. Ultimately, aggressive brand promotion plays an important role in retaining customers.

Table Of Contents

Investment Analysis of the European Adhesives and Sealants Market : Specialty High-performance Adhesives Top Investment Focus
Executive Summary 3
Key Terms and Definitions 6
Introduction 9
MandA Analysis 24
PE and VC Analysis 28
Financial Analysis 32
Conclusion 38
The Frost and Sullivan Story 42

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