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Sustainability drives change in construction chemicals market

09 February 2022 IHS Markit Chemical Expert

Sustainability is gradually becoming a decisive factor in the construction chemicals M&A space.

In two major deals announced recently—Sika's acquisition of MBCC Group and Saint-Gobain's deal to buy GCP Applied Technologies—sustainability was cited as one of the main reasons the buyers pursued the deals.

Construction chemicals, which are mixed with concrete, cement and other materials to improve durability and performance, are increasingly seen as enablers of sustainability.

As global construction rebounds from the COVID-19 downturn, the compound annual growth rate for the construction industry is projected at about 3.3% through 2026, said IHS Markit Chemicals Research and Analysis Director Erik Linak. Construction specialty chemicals will grow slightly faster, perhaps 3.5% by volume, he said.

In November, Switzerland-based Sika announced it had signed a definitive agreement to acquire MBCC, the former construction chemicals business of BASF, from an affiliate of private equity firm Lone Star Funds for an enterprise value of 5.5 billion Swiss francs ($6.0 billion). The acquisition is subject to relevant regulatory approvals and expected to close in the second half of 2022.

Sustainability is an important aspect of the transaction. The company "is working hard to become a net-zero company," including conducting its first assessment in 2021 of the Scope 3 emissions generated by the use of its products, it said.

About 70% of Sika's sales are generated by products with a positive effect on sustainability, and more than 35% of MBCC's products are "sustainably advanced," according to Sika. Through the combination, Sika is committed to generating 80% of its sales from products that positively impact sustainability, it added.

"Two sustainability champions will join forces. Sika is first in class for sustainable solutions across the entire construction industry, and similarly, sustainability stands at the core of MBCC's business. Together we will reinforce our complementary range of products and services across the entire construction lifecycle. With our combined portfolio, we will enable and accelerate the future of sustainable construction for the benefit of customers, employees, shareholders, and coming generations," said Thomas Hasler, Sika CEO.

Sika reported that its 2021 sales increased by 17.3% to 9.24 billion Swiss francs ($9.98 billion), thanks to double-digit growth in China and "large-scale refurbishment projects and newbuild projects in the areas of distribution and data centers" in the Americas.

Saint-Gobain

In Saint-Gobain's December announcement of its agreement to acquire US-based GCP Applied Technologies, a deal valued at roughly $2.3 billion, sustainability was highlighted as one of the most important factors. The transaction is expected to close by the end of 2022.

"The acquisition is a decisive step in establishing a leading position worldwide in construction chemicals with total sales of more than €4.0 billion, up from €3.0 billion, and furthers the company's strategy as [a] worldwide leader in light and sustainable construction," said Saint-Gobain, whose headquarters are just outside Paris.

Mark Rayfield, CEO of Saint-Gobain's North American subsidiary, told IHS Markit's Chemical Week that GCP "has always been a company we respected immensely. GCP's acquisition fits really well with the objectives of Saint-Gobain's 'Growth & Impact' strategy of focusing on sustainable construction and expanding the company's presence in North America."

Rayfield added that the company "will be investing $400 million in capex in North America within the next three years."

The transaction is also "allowing us to be a meaningful part of decarbonizing cement on a global scale," Rayfield said. This is the additives and admixtures side of GCP's business.

GCP's building envelope side (exterior walls, foundations, etc.) also will be a strong addition to Saint-Gobain's construction products business across North America and worldwide, Rayfield added.

Residential construction will continue to grow at reasonable rates in 2022, Rayfield said, though constrained most likely by labor supplies. "Commercial is rebounding. If you look at commercial office space, it is being renovated and repurposed," he said. "Lots of investment in warehousing and a huge growth in infrastructure."

"We think 2022 is going to be a robust year with the same challenges as 2021. Raw material supply, supply chain, [and] labor [are challenges] that are not likely to go away," he told Chemical Week.

In November 2020, Saint-Gobain announced "a commitment to carbon neutrality by 2050" and toughened its 2030 target to a reduction in direct (Scope 1) and indirect (Scope 2) CO2 emissions of 33% from its 2017 levels, down to about 9 million metric tons. Its Scope 3 goal for 2030 is a 16% reduction in CO2 emissions.

Concrete's CO2

MBCC said it welcomes the "global sustainable construction" trend but noted that it is creating big challenges for the construction industry in relation to CO2 reduction. Cement accounts for more than 2.3 billion metric tons of CO2 emissions annually, or more than 8% of global emissions, according to the International Energy Agency.

The use of clinker in Portland cement, which is added to improve setting properties, is an example where progress can be made. Low-clinker cements offer the most significant potential for reducing the CO2 footprint of concrete, MBCC said. "The immediate benefit of using low-clinker cements for concrete production is the reduction of CO2 emissions by up to 35% compared to a traditional CEM I cement and by up to 25% when using a CEM II/C M cement over CEM II/A cement," MBCC said.

The reduced clinker content and increased amount of limestone filler and supplementary materials of these less traditional cements typically bring about new challenges for concrete producers, the company said. These can include raw material variations across surface specifics as well as chemical and mineralogical composition, with consequences on the water-absorption potential and interaction with admixtures, MBCC said.

"I think sustainability is a higher priority in Europe than elsewhere in the world and will remain so, although the Chinese are advancing quickly," IHS Markit's Linak said.

--Article by Sotirios Frantzanas, Chemical Week, with contributions by Kevin Adler, Net-Zero Business Daily.

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