Water treatment swirls through consolidation

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Water treatment swirls through consolidation

A rising tide of M&A

19 August 2008 19:30 [Source: ICB] Chemical players in global water treatment are expanding through a wave of acquisitions and joint ventures THE GLOBAL water treatment industry is swimming with investment activity, and the past two years have seen several acquisitions. The biggest among them is Dow Chemical's $18.8bn (12.6bn) plan to acquire Rohm and Haas, which was announced in July. Both of the US-based majors have identified water treatment as a long-term growth area, noted a report on water treatment published by US-based Citigroup Investment Research in March. Rohm and Haas is a leading producer of ion exchange resins, biocides, and organic polymers (coagulants and flocculants) for industrial, municipal and residential markets. Dow is likewise a leading ion exchange resin and biocide producer, and it is also one of the world's largest manufacturers of water purification membranes. "Water treatment is a growing area of focus for diversified chemical producers such as Rohm and Haas and Dow," Citigroup noted. "The market for water treatment chemicals and related services is relatively fragmented. Market consolidation is likely through both acquisition and organic growth as larger players steal share from smaller regional competitors." Dow's other recent purchase includes China-based Zhejiang Omex Environmental Engineering in June 2006. The acquisition bolstered the company's Ultrafiltration Membrane Bio-Reactor membranes, and Electrodeionization capabilities, says Chuck Martz, global strategic marketing director for Dow Water Solutions. "It also gained us a complete water purification system manufacturer for China," says Martz. Future bolt-on acquisitions in water purification will contribute to the company's growth, he adds. Rohm and Haas has not made any recent acquisitions, but instead formed an exclusive alliance with US-based Basin Water in November 2007. The alliance uses Rohm and Haas ion exchange technology in Basin's treatment applications serving the North American potable water market. Another big US deal announced last month involved Ashland's $3.3bn planned purchase of water additives company Hercules. Ashland provides water treatment chemicals and services to the pulp and paper market as well as in municipal, industrial, mining/extraction and marine markets. Citigroup estimated Hercules's share in the global water chemicals and treatment market at 4.6% as of 2006. In 2002, Hercules sold part of its BetzDearborn water treatment business to GE Specialty Materials. The company retained BetzDearborn's paper process chemicals business, which includes functional additives, process chemicals and water treatment chemical products for the pulp and paper industry. Ashland considers paper a water treatment business. "The paper industry is an incredibly water-intensive industry," says Hank Waters, president of Ashland Water Technologies and Ashland Performance Materials. "Hercules will provide us a leadership position in serving the chemical needs for paper producers." The company plans to integrate its Water Technologies portfolio with Hercules's Paper Technologies and Ventures group, creating a $2bn global water treatment business. In 2006, Ashland bought the Stockhausen water treatment business from Germany's Evonik Degussa, including five polyacrylamide manufacturing facilities in Germany, China, Brazil, Russia and the US. PURIFIED WATER PLAYERS Other developments this year include the completion of Netherlands-based AkzoNobel's ICI acquisition in January. AkzoNobel produces and supplies water treatment chemicals mostly for the Northern and Central European market. US-based Alco Chemical, an ICI unit that includes water treatment products such as corrosion inhibitors, industrial biocides and polymers in its portfolio, has been integrated with AkzoNobel's Surface Chemistry business. The same month, Germany's Henkel announced that it would divest its industrial water treatment business to Germany-based BK Giulini, an affiliate of Israel Chemical. Finland-based specialty chemical company Kemira announced in June that it would concentrate only on water and fiber-related businesses in the future. The firm has been aggressively building its global water treatment portfolio, in 2007 acquiring Nheel Quimica and the coagulant business of Dalquim Industria e Comercio, both based in Brazil Chongqing Lanjie Tap Water Materials in China the coagulant business of Francebased Arkema and US-based Cytec Industries' treatment business. In 2006, Kemira expanded its water treatment chemical business in Scandinavia by acquiring four subsidiaries of Danish chemical distribution company Parcon. "Water is our business description and the basis for building Kemira in the future," Harri Kerminen, president and CEO, said during the company's July 30 earnings call. "Kemira has attained an extensive product portfolio and broad competence based in water treatment for different customer segments. The company has good growth opportunities and the prerequisites to succeed in the globally growing water treatment business," he added. The company is reorganizing its businesses into three segments: paper, water, and oil and mining. The new organization will be effective beginning October 2008. "Water is the common denominator for all these segments," said Kerminen. Kemira pointed out several trends creating opportunities for global growth in water treatment, including regulations and recycling imperatives the booming industries of oil and mining global water shortages that create pressure for efficient use the increasing need for sanitary water in emerging and developing markets and growing corporate environmental and sustainability efforts.

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Water treatment swirls through consolidation

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US market research firm Freedonia estimates that global water treatment demand will increase by 6.4%/year to nearly $40bn by 2011. The market was estimated at $29.3bn in 2006, comprising $11.2bn in chemical products and $18.1bn in nonchemical treatment products. Alternative estimates reported by Citigroup put the chemical market at around $18bn/year. "The global water treatment market is fragmented, with thousands of companies serving industrial users, municipal water suppliers and wastewater treatment operators," says Freedonia analyst Mike Richardson. "The great majority of these concerns are small suppliers of commodity chemicals who compete in a comparatively limited geographic area." The top five global players by market share, according to Freedonia, are GE (5.8%) and Nalco (5.6%), both US, Siemens, of Germany (3.4%),US-based Pall (2.6%) and Kemira (2.5%). All five accounted for 20% of global sales in 2006. Nalco, according to Citigroup, is the most directly exposed to the market, with around 50% of its earnings coming from water treatment chemicals and related services. Citigroup estimated Nalco's share of the water chemicals and treatment market in 2006 at 16.8%, the largest among its peers. Nalco has not made any acquisitions relating to its water business for several years, although the company admits that it is looking at technology-focused types of bolt-on acquisitions and joint ventures. "Our water business is both a service and a technology business - that's what differentiates us," says Nalco chairman, president and CEO Erik Fyrwald. "Our acquisition focus is on strategic technologies or unique geographies through bolt-ons that we can leverage with our global capabilities. Although not in water treatment, our acquisition of [Sweden's] Mobotec last year, in air pollution, is a good example of the types of technologies that we are interested in finding," he adds. Nalco is also investing through infrastructure building, especially in emerging geographies such as China and Russia. Fyrwald says it is opening a large manufacturing plant in China before the end of the year. "Beyond plants, suppliers and common carriers, our major investments are also finding and training those people in high-growth geographies as well as hiring the researchers at our labs to develop the new technologies for them to sell," he says. Most suppliers agree that Brazil, Russia, India, and China are the four major, double-digit growth areas for the industry. Some point to the Middle East, Africa, and the Caspian region as other growth markets. "In less-developed countries, demand is often based more on immediate health concerns than other factors," comments Martz. "More than 1.2bn people, mostly in less-developed countries, do not have access to safe, clean, fresh water." BWA Water Additives, of the US, estimates the growth rates in the Middle East, North Africa, China, India and Russia at 10-15%/year. "BWA operates in more than 80 counties, hence a good deal of our regional growth focus is in these areas," says president Paul Turgeon. BWA is also on acquisition watch for businesses that would fit its strategy and focus, he adds. "BWA is prepared for such an event, both with strong foundation infrastructure and ready funding," says Turgeon. Formerly the BioLab Water Additives business of US-based specialty chemical company Chemtura, BWA was acquired in May 2006 by Close Brothers Private Equity. Freedonia says most consolidation is centered within the chemical water treatment market, which the firm forecasts will grow by 4.7%/year to $14.1bn in 2011. The most important of these water treatment chemicals are organic polymers, followed by corrosion and scale inhibitors, biocides, and ion exchange resins, Citigroup reports. "Water treatment chemicals are consumed by a variety of industrial and institutional end markets, with energy, and pulp and paper producers representing a large portion of demand," said the Citigroup report. POCKETS OF GROWTH Growth for water treatment chemicals is slower than for nonchemical water treatment equipment and supplies, according to Freedonia. Still, global demand for water treatment chemicals continues to increase, not only in developing countries, but also in certain end market applications, says Nanette Hermsen, global marketing manager for Dow Biocides. "A key growth end-market is pulp and paper," she says. "Recycling has increased greatly in this market, helping conservation efforts to enlarge the demand of biocides and other additives so that plants continue to run efficiently." Dow Biocides intends to expand its US glutaraldehyde production capacity in West Virginia by 60%. The new capacity will be operational in January 2009. Demand for specialty water treatment chemicals in pulp and paper is even outpacing overall paper industry growth by 0.5-1%, says Waters. "In more mature economies, annual paper chemical demand is expected to grow globally at 2-3% over the next five years, due to the increasing use of recycled water and fiber," he explains. Several industry participants also point to potential growth in oilfield process applications and in mining. BWA has targeted the emerging opportunity with several new antiscalant technologies. "The oilfield market is a strong growth area given the high price of oil," says Turgeon. "Technology developments in heavy oil are leading to the need for advanced antiscalant technology." Switzerland-based specialty chemical company Ciba Specialty Chemicals says growth for water treatment is particularly high in mining and extractives because of the huge water requirements and larger environmental impacts. "Legislative pressure to conserve and recycle water is particularly high in the southern hemisphere, where most mining and extraction occurs," says Douglas Timothy Chamberlin, head of Ciba's Water Solutions business. Ciba has not made any acquisitions lately, although Chamberlin says Ciba is still investing to advance its position in the water treatment industry. Among the chemical product groups, ion exchange resins is growing particularly well in the US, according to Citigroup. The resins are widely used in water softening and purification processes as well as production of high-purity water in electronics and pharmaceutical manufacturing. German specialty chemical company LANXESS is building a new ion exchange resin plant in Gujarat, India, which will be operational in 2010. The company has also completed ion exchange resin expansions in Bitterfeld and Leverkusen, Germany. "Demand for high-quality ion exchange resins has risen dramatically," says Jean-Marc Vesselle, head of LANXESS' global product management, ion exchange resins business. "Our order books are full. The expansion of the facilities brings considerable and urgently

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Water treatment swirls through consolidation

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needed increase in capacity." Ion exchange resins occupy 15% of the global water treatment chemical market, according to Citigroup. Dow Chemical and Rohm and Haas are leading producers. Other nonchemical water treatment product categories are membranes (43%), demineralization (16%), ozonation (13%), ultraviolet and disinfection (12%). Other products account for another 15%). Freedonia expects the nonchemical market to grow by 7.4%/year to $25.8bn by 2011. Read Doris de Guzman's green chemicals blog ICIS Copyright Reed Business Information 2012
Author: Doris de Guzman +1 713 525 2653

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Links posted in this story: Arkema, Ashland Incorporated, Chemtura Corporation, Ciba Specialty Chemicals Holdings Incorporated, Cytec Industries Incorporated, Dow Chemical Company, Hercules Incorporated, Kemira, Nalco Holding Company, Rohm & Haas Company

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