Chemical Distribution
There is still room for consolidation
When you move from industries like mining to the chemical and petrochemical sectors, it might feel like, even as the world accelerates, especially this past year with geopolitical, economic distress, or climatic events happening more frequently, both the chemical and petrochemical industries continue at a slower, more predictable pace. That is not the case. Similarly, looking at the reasons behind the current downcycle, the whole industry seems to be at a standstill. Again, that is another misconception.
The truth is, during downcycles, strong companies adapt, survive, gain market share, and look for consolidation through M&A. But what really defines strength? Depending on your background and how you define strength, you might consider qualities like annual revenue, adaptability, financial stability, innovation, and strong leadership. However, we should focus on the true essence of strength—the capacity to endure, overcome challenges, and maintain or grow in the face of adversity. It is clear that every chemical distribution company operating in Latin America demonstrates a great deal of strength. According to Verified Market Research, if that were not the case, it would be impossible for the Latin American chemical distribution market to be valued at US$25.83 billion in 2024 and projected to reach US$36.12 billion by 2031.
Latin America is an arena where the top three global chemical distributors, Brenntag, Univar Solutions and Tricon Energy, are all looking to grow their market share. There seems still to be more room for consolidation in this market. For example, in May 2024, Brenntag announced the acquisition of the Mexican chemical distributor Química Delta. Germán Torres, president at Brenntag Essentials Latin America, told GBR that mergers and acquisitions are a key part of Brenntag’s growth strategy, especially in Latin America, where they see significant opportunities in markets like Mexico and Brazil due to their proximity to the US and the trend for nearshoring. He also noted that each country in the region has unique strengths in various business areas, including agrochemicals, fertilizers, personal care, and construction. "This rich diversity across the region makes our business stimulating and rewarding. Instead of relying on a single market for opportunities, our approach combines various industries and sectors, allowing us to develop diverse strategies for growth, both organically and through acquisitions," he added.
Jorge Buckup, president of Latin America at Univar Solutions, emphasized that the success of large global companies relies heavily on leveraging the local component: “We are a global company, but local teams are essential, especially for Latin America. These teams understand the culture, are well aware of local market dynamics, and deliver solutions tailored to each specific market, whether in Mexico, Brazil, Argentina, Venezuela, or Colombia,” he commented.
When discussing mergers and acquisitions in the chemical distribution sector, Buckup noted that Univar made several organizational adjustments over the past year to enhance its market approach. However, being acquired by Apollo Funds in 2023 has been a game changer, providing crucial support and allowing the company to implement its strategy with greater agility: “Operating as a private company with the support of a private equity fund like Apollo opens up more possibilities for us, including better resource allocation, whether in people, training, development, new capital investments, or acquisitions. As a private company, M&A is crucial for growth, particularly in Latin America, where we constantly explore opportunities and have conversations to identify the best choices for our markets,” he concluded.
Returning to the earlier point about the misconception that the industry was at a standstill, Javier Canala-Echevarría, Pochteca’s regional director for South America, helped dispel that notion: “The chemical distribution market is in constant movement, especially considering that market players face an always challenging supply chain and economic and political conditions. Consolidation provides customers access to one-stop-shop supply, whilst distributors strive to achieve a more diversified and integrated operation to improve efficiency and reduce risk.”
Canala-Echevarría assessed the challenges faced by the industry, noting that they are multifaceted and stem from various supply chain disruptions. Some of these issues arose from the effects of Covid-19, which caused significant fluctuations in product availability and costs due to variability in transport and freight expenses. He highlighted that companies are now looking to balance their offshore models with local alternatives and reduce their reliance on concentrated suppliers with an appetite for sustainable products and solutions: “Managing all variables to ensure a strong product portfolio, a reliable supply to our customers and achieve a more streamlined and cost-efficient operation are all key challenges in the industry,” he explained.
Another company on the top 100 distributors list with a strong local presence, similar to Pochteca, is Química Anastacio. In conversations with Jan Krueder, the company’s CEO, he shared with GBR that in 2023, sectors such as base oils, lubricants, paints, industrial processes, and agriculture demonstrated resilience. Despite achieving double-digit growth, Krueder believes the results could have been even better: “Launching new products frequently has allowed this growth, compensating for slower economic conditions, specifically in Brazil. In 2023, we saw a significant price decline, preventing increased revenue growth despite maintaining high volume increases.”
“Our leadership in Brazilian distribution demands competitive pricing strategies, robust sourcing capabilities, and adept international management, prioritizing FOB over CFR and negotiating locally for efficient logistic solutions,” concluded Krueder.
Adriana Ramírez Millán, chemical sales director at Helm de México, commented that the company has mainly focused on organic growth, but also exploring investment opportunities in the sustainability market: “We are willing to consider acquisitions that complement our strategy, especially those that drive sustainable initiatives, such as producing eco-friendly products. We are adapting to market dynamics and evaluating how we can expand strategically,” she added.
“We have recently signed an agreement to acquire a majority stake in Proquiel Químicos, expanding our presence and increasing our turnover in Chile four to five times. With Proquiel's 150+ employees joining Manuchar's existing team, we will combine efforts to capture more market share.”
Stefan Van Loock, Region Manager – South America, Manuchar
Mind the gap and seize the prize
M&A’s benefits are clear: gaining access to new markets, offering more specialized services, and expanding the footprint. However, Capstone Partners reports that M&A activity in this segment dropped by 77.8% by June 2024 compared to the same period last year, mainly due to the increasingly blurred lines between manufacturers and distributors.
Many distributors still prefer organic growth before M&A. For instance, Jan Krueder for Anastacio shared that even though the company is exploring the potential acquisition of an SME on the Pacific Coast, it is still focusing on organic growth across Brazil, Argentina, and Mexico.
One might wonder if the drop in M&A activity is due to the current unfavorable conditions in the industry or if it is because there is no longer room for further consolidation. The latter seems less likely, as we are still witnessing ongoing activity in the sector. For instance, Stefan Van Loock, region manager of South America at Manuchar, shared with GBR the recent agreement to acquire a majority stake in Proquiel Químicos in Chile to increase the company’s turnover in the country four to five times with the goal “To create a synergy that exceeds the sum of its parts—turning `one plus one´ into `two and a half,´ in his words.
On the other hand, when interviewing Alessandro Moraes, IMCD’s managing director in Brazil, he explained that in the past year, the company completed 23 acquisitions globally, with 11 in the first half of 2024 alone, adding: “Whether penetrating new geographical areas or branching into different business sectors where we have limited or no presence, acquisitions play a crucial role in IMCD’s strategy.”
So, no, the market is not yet fully consolidated. However, as the segment continues to consolidate, are there any gaps left or “homeless segments”? According to Francisco Martínez, managing director of GreenChem Industries, there are.
Martínez introduced GreenChem as a US family-owned company whose growth has been entirely organic, a path they plan to follow as they recently stepped into Mexico, establishing an office to leverage the friendshoring trend: "Mexico's petrochemical sector is shrinking, with the country increasingly relying on imports from Asia rather than producing these goods domestically. In this context, the outlook for the distribution sector is positive. When clients request products not manufactured in Mexico, we can source them globally. Often, the finished products are then exported to the US. Nearshoring presents a significant growth opportunity compared to the local chemical industry, as the distribution sector expands by importing products worldwide, reducing reliance on local manufacturing," he added.
On the gaps that M&A leave, Martínez commented: "Often, when an acquisition happens, a new company is born. This consolidation helps improve our industry, fostering institutional companies prioritizing Responsible Care, Responsible Distribution, and SARI. These companies are concerned with addressing industry challenges and the society we serve, so it's better to collaborate with our valued partners and friends on the same playing field […] With each consolidation, we've seen increased interest from customers and suppliers in new players like GreenChem."
Another distributor with a local focus in Latin America that has traditionally focused on organic growth is Mcassab. The company recently invested approximately R$170 million (about US$30 million) in a new centralized distribution center in Jarinu, Brazil, to enhance specialization within each market segment they serve.
“In today's global context, there is a considerable risk that major producers may not meet their supply commitments. When this happens, some clients end up waiting in a backlog for supplies. However, production lines cannot stop.”
Jorge Hernández, Commercial Director - Mexico, DAXX
Gustavo Levy Dosualdo, MCassab’s director for Brazil, said: “Distribution companies often focus on particular markets where their value lies in their specialized knowledge. However, acquisitions usually bring cultural clashes, which we have observed in the M&A process of competition. We see a common issue like the imposition of foreign cultures, which rarely translates smoothly. For instance, European or American distributors must adapt to the Brazilian market’s complexities, including intricate regulatory and fiscal landscapes.”
Bandeirante Brazmo is a 100% nationally owned distribution company based in São Paulo. CEO, Carlos Marin, explained that international distributors sometimes struggle to grasp local dynamics, focusing more on metrics: “They often aim to capture significant local market shares, but can struggle with pricing strategies adapted to Latin America. Some find greater profitability in higher-margin markets abroad. In Brazil, maintaining high inventory levels to ensure turnover is crucial, especially given the exchange rate volatility. The recent fluctuation from R$4.17 to R$5.66 per dollar—a nearly 10% change—illustrates this risk,” he asserted.
Both Martínez and Levy’s statements ring true. For example, consider Brenntag’s “Last Mile” strategy, which aims to enhance local operations, improve planning efficiency, and better understand customer needs. As German Torres explained: "While Brenntag's size can create complexity, clients want straightforward and agile service. As such, we focus on efficiency, quick responses, and seizing market opportunities to make interactions smoother and more accessible for clients."
Trading
It is easy to fall into generalizations, especially when trying to synthesize comprehensive reports on an industry as broad as chemicals, and particularly in a region as vast as Latin America. From a business perspective, there are more factors that divide Latin America than unify it. However, these gaps present opportunities for trading companies. Matthias Vorbeck, Anastacio Overseas’ general director, said: “As a trading company, some gaps and challenges benefit us. Both Africa and Latin America are facing the need for robust logistical and financial support. This is crucial for facilitating trade across diverse markets.”
While Anastacio Overseas started in Brazil and expanded to other markets in Latin America and Africa, another trading company that took the opposite approach is Reuse Trading. According to Tomas Steppe, managing director of the Belgian-based trader, the company found smaller markets in Central America, the Caribbean and Africa easier to grow than larger South American markets like Brazil or Argentina. However, he pointed out that Africa could learn from Latin America’s experience with regionally integrated distributors: “The presence of regionally integrated distributors in Latin America, who operate across multiple countries, provides a model for approaching and engaging large, well-established distributors. As Africa’s market evolves, adopting these practices could be beneficial for expanding our business there,” he concluded.
Article header by Pochteca