Adhesion Matters - M&A

Episode Date: August 6, 2025

The global adhesives and sealants market is a robust and expanding sector within the chemical industry, projected to grow from $85.38 billion in 2025 to $114.94 billion by 2030, at a Compound Annual Growth Rate (CAGR) of 6%. This growth is driven by increasing demand for high-performance bonding solutions, which are displacing traditional mechanical fasteners in key areas like lightweighting in vehicles, automated e-commerce packaging, and modular construction.   In today's episode of Adhesion Matters, we cover the mergers & acquisitions activities of this industry over the past 50 years.  The industry currently exhibits robust M&A activity with increasing valuation multiples, reflecting its resilience and growth potential. Future consolidation, according to our sources, is expected to target independent manufacturers with niche specializations, technological advantages, strong positions in high-growth end-markets, or unique geographic access.

Welcome to the deep dive. Today, we're pulling back the curtain on an industry that quite literally holds our modern world together. But it's one you rarely, if ever, really think about adhesives. It's right. It's this huge, rapidly growing sector that's been, well, dramatically reshaped by mergers and acquisitions M&A over the last, what, five decades. Yeah, about that. It's been a long process. So our mission today is to sort of unpack its hidden, strategic importance, show you how M&A has driven its evolution. and, you know, explore what that means for its future. It's fascinating, isn't it? Something so ubiquitous, almost invisible, is actually a multi-billion dollar powerhouse.

I mean, to give you a sense of the scale, this market is projected to grow from, let's see, an estimated $85.38 billion this year. $85 billion, wow. To nearly $115 billion by 2030. That's with a compound annual growth rate or CAGR of 6%. 6%. Yeah, which is a pretty consistent expansion. It really underscores just how foundational and, frankly, adaptable this invisible industry is to almost every major global trend. A 6% CGR for an industry like this is pretty remarkable.

And when you look at the key drivers for this growth, it becomes clear why it's so robust. We're talking about the lightweighting revolution in vehicles, making cars and planes lighter. The explosion of automated e-commerce packaging and the increasing push towards modular consumers. construction. Right. This isn't just about sticking things together anymore. It's about enabling these future forward technologies and efficiencies. That's precisely it.

Adhesives have moved far beyond just, you know, sticky tape. They are now high performance bonding solutions, actively displacing traditional mechanical fasteners like screws or rivets in many cases. This shift is less about simple assembly and more about advanced material engineering. So as we unpack these growth catalysts, you'll find just how interwoven adhesives are with our daily lives. Take the e-commerce boom, for example, the sheer volume of boxes moving through fulfillment centers worldwide. It demands a level of reliability and speed from packaging adhesives. Absolutely. Labels, tapes, cart and ceiling. Exactly. Things that would have been

unimaginable just a decade ago. And then there's the rapid rise of modular and prefabricated construction, especially prominent in the Asia-Pacific region. Yeah, that relies heavily on advanced adhesives for speed and importantly structural integrity and we really can't overlook the sustainability imperative either there's this intense industry-wide push for eco-friendly recyclable formulations that seems like a big challenge it is this isn't just a nice to have it's driving fundamental innovation it raises a really important question how can we bond things strongly today while still allowing for easy recycling or disassembly at the end of a product's life it's a complex

challenge with massive implications. I'm struck by that point on sustainability. Plus, you've got ongoing technological innovation in areas like what waterborne and hot melt technologies. That's right. They're constantly expanding what's possible, pushing the boundaries of what adhesives can actually do. So when we break down the market segmentation, where does the biggest demand lie? Well, packaging leads. It's the dominant end user, holding about 43% of the adhesives and sealance market in 2024. Globally, it's even higher, maybe around 52%. Makes sense, given what you said about e-commerce.

Totally. But the high growth sectors are really interesting, too. Building and construction, that's projected to grow at a 6.5% CAGR through 2030. Okay. And health care, which is actually the fastest growing segment overall, lots of potential there. So from a chemistry perspective, what are we looking at? It must be pretty diverse. Oh, incredibly diverse.

You have polyurethane, which is prized for its versatility and strength, silicone for high temp resistance and flexibility. And like super glue. Exactly. Sinoacrylate, that's the super glue, known for its fast-setting high-strength properties. Then you have water-based technologies, which currently account for 42% of revenue, largely because they're more eco-friendly. Right.

And reactive systems are the fastest growing through 2030 with an 8.2% CAGR. Reactive systems, what's special about those? Well, unlike gludes that just dry, reactive systems undergo a chemical change. They cure to form these incredibly strong and durable bonds. Perfect for high performance needs where durability is absolutely paramount. Got it. So what does this all mean for you, the listener? Adhesives are these critical inputs enabling major industrial trends.

Think about lightweeting and automotive and aerospace, those hyper-efficient automated packaging lines we talked about, and the speed and precision of modular construction. And it's why the sector is often characterized as highly recession-resistant. Its utility is just so pervasive across almost every industry. It really does hold the modern world together often without us even realizing it. Which brings us neatly to why M&A is such a, well, such a driving force in this industry. Despite its colossal size and foundational importance, the adhesives market is remarkably fragmented.

Fragmented. How so? Well, a handful of major players only hold about 40% of the global market value. 40% that leaves. A massive 60% dispersed among hundreds, literally hundreds, of small. and medium-sized enterprises, many with revenues under $100 million. So what you're saying is this creates a really diverse pool of attractive acquisition candidates for the bigger companies to, well, scoop up. It absolutely does.

And one of the core reasons for this consolidation often boils down to raw material cost pressure. Ah, sure. Raw materials make up a huge chunk of the cost of goods old something like 53 to 63%. Wow, that's high. It is. And volatile prices for those materials disproportionately impact the smaller players. It makes them vulnerable and, frankly, attractive targets for larger companies who are seeking economies of scale in procurement. This isn't just about getting bigger.

It's about gaining leverage in purchasing. It's a critical observation. And then there's globalization, right? Exactly. As major customers, like the big automotive OEMs, consolidate globally. Adhesive manufacturers have to expand their own global footprint to serve them effectively. And M&A is the fastest way to do that. By far.

You can't just organically build that kind of presence overnight. Acquisition gives you immediate scale and market access. Makes sense. What about regulations do they play a part? Oh, definitely. Environmental regulations play a significant role. Strict rules, like those on VOC emissions or the EU construction products regulation, they force innovation and compliance.

So companies that already have advanced compliant and sustainable technologies think water-based, or UV-cured adhesives, they become highly desirable acquisition targets. So the acquirer gets that tech quickly. Precisely. It allows them to rapidly meet evolving demands without having to, you know, reinvent the wheel internally. Yeah, of course, there's the ever-increasing demand for high-performance solutions. Right. The shift towards specialized applications, light weighting, automated packaging, advanced medical devices.

It drives M&A towards those niche players who have proprietary formulations. So it's not just about adding volume. No, it helps acquires reposition themselves as specialty materials providers with unique, hard-to-replicate capabilities. Okay, let's talk financials. This sector is seen as high value and recession-resistant, you said. Yeah. How does that translate into M&A deals? Well, it translates into consistently high M&A valuation multiples.

Meaning they pay a lot for these companies. Relatively speaking, yes. For example, the Arkima and Ashland deal was valued at over 20 times trailing 12 months EBITDA. 20 times. Can you quickly explain? EBITA again? Sure. It's earnings before interest, taxes, depreciation, and amortization. It's basically a common way to measure a company's operational profitability, how much cash it generates before accounting for non-operational costs in certain accounting charges.

Okay. So 20x EBITDA is high, but they expect it to come down. Yes, that multiple was expected to reduce significantly down to maybe 8.7x by 2026 once they achieved the plan synergies. And generally, the average chemical M&A multiple is approaching maybe 9.0x enterprise value to EBITDA through 2025. Still pretty healthy. And those high multiples are justified by what you called highly obtainable operating synergies. That's the key, especially in raw material purchasing because of that high cost percentage, but also in sales and marketing and manufacturing optimization. So the raw material savings are a huge driver. Massive. This isn't just financial jargon. It means these acquisitions are designed to unlock real,

tangible efficiency games, making them incredibly attractive investments. What's also interesting here is the role of private equity. Yes, PE firms are quite active. They account for about 25% of chemical industry transactions overall. Why are they so interested? They're drawn by the fragmentation, which offers consolidation opportunities, the stable cash flows many of these businesses generate, and relatively low capital expenditure requirements compared to other industries.

So they often pursue buy-and-build strategy? Yes, exactly. They buy a platform company and then add on smaller acquisitions. It further accelerates market consolidation and offers viable exit routes for smaller, often family-owned businesses. Okay, so we've talked about why this industry is so ripe for M&A. Now let's look at who is actually leading this charge. How are these corporate titans strategically using acquisitions to redefine their empires? Let's start with Henkel. You call them a master of the acquisition game. They really are a prime example of an acquisition-led powerhouse. They've systematically combined their own organic growth with really strategic purchases over decades. The Locktide deal in 97 seems pivotal. Oh, absolutely a game changer for Henkel. They paid over a billion dollars just for a 65% stake.

And Locktite was special because... It was incredibly profitable. Famous for that, sells by the drop and not by the pound model, a really efficient business. And crucially, they held proprietary tech. anaerobic adhesives and cyanoacrylate, you know, the superglute tech. So it gave Henkel a flagship brand and high margin technology. Exactly. It catapulted them forward in the adhesive space. And they didn't stop there?

No. In 2008, they bought National Starch for $2.7 billion. That broadened Henkel's portfolio significantly, especially pushing them into electronic materials and really solidifying their global leadership there. And more recently. Just last year, 2023, the acquisition of Critica infrastructure. It shows their ongoing focus on targeted bolt-ons, this time for speralized maintenance, repair, and operations MRO solutions specifically for critical infrastructure. It's a very consistent strategy. Okay, next up, Huntsman, their journey sounds like a transformation.

It really has been. They move from more basic commodity chemicals towards differentiated specialty products, and M&A was absolutely key to that. Early on, they made some big moves to diversify, acquiring Texaco chemical in 94, ICI's Industrial Chemicals Division in 99. These brought in key adhesive building blocks like polyurethanes, laying the groundwork. And then they created a specific division for this. Yes, in 2003, they established their Advanced Materials Division. That came through acquiring the Vantico Group, which really focused them on epoxy, acrylic, and polyurethane systems, including the well-known Aeroldite brand.

That was a clear signal of moving into higher value applications. Right, Aeroldite. I know that name. Exactly. And their recent bold-ons in 2020, CBC thermoset specialties for $300 million and Gabriel Performance Products for $250 million. These just exemplify their continued focus on specialty additives. What did those deals achieve? They strengthen Huntsman's North American footprint and were expected to create significant commercial synergies. It was all about enhancing their formulations business, creating differentiation in what can be a crowded market.

Okay, moving on to Dow. Their M&A strategy sounds more. like continuous portfolio sculpting. That's a good way to put it. They've engaged in massive mergers, but also very strategic divestitures over the years. Think about the Dow Corning Joint Venture. It started way back in 1943 as a 50-50 JV with Corning Glassworks. Wow, 19403.

Yeah, a long history. Dow finally acquired the remaining 50% in 2016 for $4.8 billion, securing full control of that crucial silicone technology. That's a long game they played. Decades. And then the huge Dow DuPont merger. Right. In 2017, that was a monumental corporate reorganization.

It ultimately led to a more focused material science company for Dow after the spin-off in 2019. The goal was really about creating a leaner, more agile enterprise focused on its core strengths. And they're still refining. You mentioned a recent divestiture. Yes, very recent 2024. They sold their flexible packaging, laminating adhesives business to Arnama for $150 million. This was explicitly driven by what they called a best owner mindset. A strategic decision to focus on core, high-value, sustainable segments where they see better growth or synergy. But they didn't sell everything in that area. No, and this is crucial. Dow retained its water-based, laminating, and acrylic adhesives. It

shows a very nuanced, strategic approach. They're optimizing their portfolio, not just making broad cuts. Interesting. Okay, finally, DuPont, also known for big portfolio changes. Yes, significant portfolio rationalization and also targeted acquisitions. Their mobility and materials divestiture in 2022 was huge selling the majority of that business to sell an ease for $11 billion in cash. 11 billion. Why is such a big move? It was all about unlocking shareholder value and really sharpening their focus on core,

high growth, high margin businesses where they felt they had the strongest competitive advantages and future potential. But like Dowell, they kept certain parts. Exactly. DuPont retained specific parts of that business, notably certain advances. solutions and performance resins, specifically their auto-adhesives and fluids. Ah, so keeping a foot in high-value automotive, probably thinking about EVs. That seems very likely. It shows a focused interest there. And just this year, 2024,

they acquired Donatelle Plastics. What's that? It's a medical device contract manufacturer. This move demonstrates a clear pivot, or at least an increased focus, towards high growth and markets like healthcare. Where specialized adhesives are critical. Absolutely critical for and new product development and medical devices. These case studies really paint a picture. M&A isn't just about getting bigger. No, it's about becoming more specialized, more efficient, and more strategically aligned with where the market is heading.

It's about shaping the entire industry landscape, really. So what are the overall effects, the ripples of all this consolidation across the industry? You mentioned earlier that despite all this M&A activity, the market remains pretty fragmented at the lower end. That's right. That 60% held by hundreds of. of smaller players is still a defining characteristic. It's not like it's become an oligopoly. Not yet, anyway. Okay. But MNA does accelerate innovation. Oh, clearly. Especially in those

key areas. Sustainable formulations, high-performance applications like medical grade or EV components, and advanced curing technologies. Larger players gain R&D capabilities and critical know-how from the firms they acquire. Acquisitions effectively become a shortcut to accessing cutting-edge technology. And it drives operational excellence, you see. said. Those synergies. Yes, acquisitions can generate substantial synergies. Improve raw material purchasing power is a big one, given how much raw materials cost. Right, that 53, 63% figure. Exactly. But also leverage sales and marketing operations and optimized manufacturing footprints. Those savings are absolutely massive and can immediately impact the bottom line.

M&A also offers a quick way to expand globally. Definitely. It provides a rapid pathway for major players to expand their reach, particularly into high growth regions like Asia. Pacific. It bypasses the slower, often more capital-intensive process of building organically from scratch. It's a fast track to market share. And financially, the impact is pretty direct. Very direct. M&A is a lever for enhanced financial performance and shareholder value. It can accelerate earnings growth and generate significant free cash flow. Often, there are expectations of immediate EPS accretion, too. Meaning the deal is expected to boost earnings per share right away. Correct. Making the acquiring company appear more profitable for its shareholders almost

instantly, assuming the deal is structured and executed well. So this leads us to the critical question. What's next? Where is this M&A train headed? Well, the first point is that persistent 60% fragmentation. That ensures a continuous pipeline of attractive acquisition candidates for years to come. The consolidation isn't finished. So what makes these remaining targets so attractive? What are acquirers looking for? Several things. Niche specialization and a technological edge are key. That could mean proprietary formulations or expertise in advanced curing technologies like UV LED curing or these sophisticated dual cure systems. Expertise in specific chemistries, too.

Yes. High performance chemistries for extreme conditions, epoxy, silicones, sinoacrylates, or materials with critical properties like biocompatibility, which is crucial for medical applications. And being in the right markets. Absolutely. Absolutely. A strong position in high growth end markets is vital. Medical devices, EV electronics, advanced packaging, aerospace, maybe critical infrastructure repair. Geographic presence is also a factor. Having a strong regional market share in high growth areas like Asia Pacific or key North American industrial hubs is a big plus. And sustainability must be playing a bigger role now. Increasingly important, yes. A focus on sustainable, eco-friendly, or recyclable solutions definitely makes a target more attractive. ESG alignment is becoming table stakes. And the financials.

Financially healthy companies, of course, stable cash flows, relatively low capital expenditure needs that makes them appealing, especially, as we said to private equity. And finally, the ownership structure often matters. Family-owned businesses or perhaps founder-led unfunded companies might be actively looking for scale or planning exit strategies, making them opportune targets. Okay, so can you give us some examples? Who fits this kind of profile? Well, consider a company like Master Bond, Inc. in the USA. They're currently an unfunded company

specializing in a diverse range of high performance systems, epoxy, silicones, UVLED, curable adhesives. They target demanding industries like aerospace, medical electronics, and they have critical certifications like NASA, low outgassing, and biocompatibility approvals. So a perfect bolt-on for someone needing that specific expertise. Exactly. Then there's Joitt Corporation, originally German, but with a big U.S. presence too. They're a global industrial adhesive supplier. They have manufacturing sites across continents, Germany, USA, Switzerland, Malaysia, and importantly, a new R&D and manufacturing center in China, plus a broad product range, including green adhesives. And they're family

owned. Yes, family owned. That combination, global footprint, sustainable offerings, family ownership could make them an interactive platform acquisition for a larger player or even PE. Interesting. One more. Let's look at Delo Industrial Adhesives, also from Germany, also family-owned, but they invest a really significant amount about 15% of their turnover back into R&D. 15% is a lot. It is. They're a leader in UV curing and advanced dual curing systems, and they provide turnkey

solutions, not just the adhesive, but the dispensing and curing equipment, too. So a full system provider? Right. They're critical suppliers and semiconductor sensors, medical equipment, EV manufacturing, working with huge global OEMs like Mercedes-Benz, Samsung, Bosch, they really epitomize that highly specialized innovation-driven target. Okay, so to sort of wrap up our deep dive today, the adhesives industry, though often overlooked,

is clearly a truly dynamic high-growth sector. Absolutely. And M&A has been the primary engine of its transformation, really driven by that unique market fragmentation and the relentless demand for ever more specialized solutions. And we've seen how leading players have used M&A not just for pure scale, but really for strategic repositioning, getting access to cutting-edge innovation, and achieving significant operational efficiencies. That's right. And the ongoing consolidation will undoubtedly continue to shape this vital industry in profound ways.

It's a space to watch. Definitely. As our world demands lighter, more connected, and crucially more sustainable products, the quiet science of adhesives just becomes even more critical. Think about it. The next breakthrough in electric vehicles or medical devices, or even the simple efficiency of your next online package might literally be stuck on the innovative power of this industry and its ongoing consolidation. So here's the thought to leave you with. What seemingly invisible industry do you think is quietly shaping our future right now?