The distribution market has always been very fragmented in the region, but M&A has been gathering pace in past years.
Image courtesy of GTM
Latin America’s chemical distribution market presents a combination of both global players, such as Univar Solutions and Brenntag, and regional companies for whom Latin America has always been their backyard, including Pochteca, GTM, Química Anastacio and Reno, among others. Over the last years, some of these players have engaged in significant M&A activity, expanding inorganically through acquisitions, and this process is far from being over.
“Latin America continues to have a very fragmented chemical distribution industry, with hundreds of small-regional players. The challenging economic environment, open borders, government regulations, economy of scale requirements to be competitive, e-commerce and digitization, and low commodity prices will all result in more mergers and acquisitions in our region,” said Eugenio Manzano, executive director of Pochteca, adding that the Mexican-based company keeps its eyes open for any attractive growth opportunities that come across.
In challenging times like these, some companies are taking a more conservative approach. Reno S.A., a solvent-specialized distributor based in Chile and with sales operations in Peru and Argentina, has taken a deliberate decision to grow organically. “This ensures that our growth is sustainable and minimizes our exposure to management risks, because acquisitions can represent a loss of control. For this reason, we want to open operations in Colombia directly with our own office, and only after consolidating our presence in the Peruvian market,” explained Claudio Gorichon, general manager of Reno S.A.
Entering new business segments and constantly incorporating new products is another strategy by regional distributors to ensure a stronger position both in front of clients and providers. Brazil’s Química Anastacio, for example, believes the company has to be very agile, as explained by its CEO Jan Krueder: “We operate in 18 market segments and we see plenty of opportunities to continue growing. Currently we have around 1,000 products in our portfolio and will be incorporating approximately 10 new products per month moving forward.”
Matthias Vorbeck, general manager of Anastacio Overseas, the firm’s international trading arm, further explained: “During difficult times like these, a significant number of international companies leave the region in fear of losing profits. That represents an opportunity for us, to gain more market share and more relevance for our suppliers.”
In parallel to exploring growth avenues, many players in the distribution segment have been increasingly leaning toward the more profitable specialty chemicals market, even though that has required extensive human resource, client relationship and cultural change efforts as specialties are a very different industry than commodities. Manzano of Pochteca highlighted that approximately 40% of the company’s product line undergoes some value-adding process, for example.
U.S.-based Univar made a big move toward the specialty business with the acquisition of Nexeo Solutions. The new post-merger company, called Univar Solutions, has an important focus on specialty markets such as personal care, food, pharma and coatings, supported by a number of development laboratories called ‘Solution Centers’. Especially in food, the company is working on R&D initiatives to bring more sustainable products to the market.
In Latin America the company has operations in Brazil, Mexico and Colombia, and covers the rest of the market through indent sales. “We have the opportunity to expand our footprint regionally, which will allow for business growth, either organically or through M&A,” said Jorge Buckup, Univar Solutions’ president Latin America. “Indeed, M&A is part of Univar Solution’s strategy and we will continue to look for good opportunities. However, we are being more specific on what we want and which markets we want to invest in,” he affirmed.