Market outlook: KODA targets more M&A to build out growth strategy

14 February 2014 00:00 Source:ICIS Chemical Business

CEO Frank Bergonzi focuses on specific industry verticals to build one of the leading specialty chemicals distributors in North America. Annualised sales have grown from $330m in August 2012 to around $550m today

US-based KODA Distribution Group (KDG) is on the move. After making a series of acquisitions in 2013 and 2014 to add new businesses and bolster coverage in existing product areas, the company is seeking additional deals in the oilfield chemicals and personal care ingredients areas.

 KODA delivers less-than-truckload (LTL) quantities from its warehouses

Copyright: KODA

“We have a pretty aggressive [mergers and acquisitions, M&A] strategy to build on our strategic plan. The driver is to diversify into industry-focused business units in high growth markets,” said KDG president and CEO Frank Bergonzi.

“We aim to create new industry verticals, adding legs to the stool. We are creating the number one specialty chemicals distributor in North America,” he added.

Key markets of focus include coatings, adhesives and sealants (CASE), urethanes, lubricants and metalworking fluids, personal care, pharmaceuticals/nutraceuticals, specialty agrochemical and construction solutions.

“We sell in packaged goods quantities – factory sealed bags – in [less-than-truckload, LTL] quantities. We don’t ship in bulk, we don’t have tank farms and don’t use railroads,” said Bergonzi. “We have approximately 7,000 customers, and thrive by selling to a customer base that producers can’t readily access.”

STREAM OF ACQUISITIONS
In February, KDG announced the acquisition of The DeWolf Companies, which serves the personal care, colour cosmetic, and HI&I (household, industrial and institutional) markets in North America.

“The added resource the KDG organisation brings to The DeWolf Companies puts the organisation in an even stronger position to meet supplier, customer, legal, EH&S (environmental, health and safety) and regulatory demands of the evolving chemical distribution landscape,” said Bergonzi.

KDG solidified its legacy presence in the CASE market with the acquisition of E.W. Kaufmann in May 2013, adding coverage in the northeast US. “We had a geographic gap in the US northeast, which we filled with Kaufmann. Now we have a national footprint in the CASE market,” said Bergonzi.

Its purchase of Specialty Professional Products (SPP) in October 2013 marked KDG’s first foray into specialty agricultural chemicals – mosquito control, vegetation management, forestry and range and pasture. SPP distributes products from suppliers that include Dow AgroSciences, BASF, DuPont, Bayer, AMVAC Nufarm and Central Life Sciences.

The ADAPCO division of SPP distributes chemistry, equipment and guidance technology to the organised mosquito abatement industry throughout the US and overseas.

Red River Specialties – also part of SPP – distributes herbicides, insecticides and other chemicals in three markets – forestry (timber); vegetation management at industrial sites such as factories, railroads and utility boxes; and range and pasture, to control noxious weeds and improve productivity on cattle pastures and ranges.

The acquisition of Marcor Development Corp in January 2014 brought pharmaceuticals and nutraceuticals to KDG’s product portfolio. “With this deal, we will add resources, salespeople, suppliers and new customers. We can grow Marcor by double-digits [revenues, percentage wise] and it has a nice margin profile. We see it as a diamond in the rough,” Bergonzi said.

And KDG is not quite done adding legs to the stool. Expect more deals going forward, and at least one in a new business.

“We’ll seek to build out a few more verticals, as shown by our recent acquisition of The DeWolf Companies adding to our growing footprint in personal care, with continued focus on growing organically,” said Bergonzi.

The acquisitions KDG has made since Bergonzi joined the company in August 2012 has boosted its annualised sales from $330m then, to a projected $630m today.

Regional service and maintaining brand equity are key elements of KDG’s strategy. As it builds out verticals through acquisitions and organic growth, it plans to keep businesses independent, and also maintain a focused sales force.

“We don’t have generalists selling across businesses. For example, a Ribelin salesperson doesn’t sell to the personal care space.” KDG acquired distributor Ribelin, which serves the CASE market in the Midwest, southeast and southwest US, in 2006.

Another key aspect of KDG’s strategy is its use of application laboratories. It has five labs across the US – two serving the construction sector, and one each for coatings, inks and graphic arts, and plastics.

“These labs serve our customers who don’t have access to labs and they are a major part of our value proposition. It makes our business a bit more sticky,” said Bergonzi.

SUPPLIER PARTNERSHIPS
KDG has announced several new supplier partnerships in recent months, moves that will support organic growth.

In January 2014, KDG signed a deal with Dow Chemical to distribute the latter’s isocyanates and polyols to the US polyurethanes (PU) market. The non-exclusive agreement includes polymeric methyl di-p-phenylene isocyanate (MDI), polyols and toluene di-isocyanate (TDI). KDG’s Ribelin unit will cover sales in the southeast and southwest US, and its PT Hutchins division in the west.

“Their technical expertise and strategically located warehouses will assure our products are readily available for customers,” said Chris Chrisafides, senior commercial director of Dow’s PU business. Also in January, KDG announced a deal with Solazyme to distribute its high oleic algal oil for the lubricants and metal working fluids sector in the US and Canada through KDG’s Monson division which caters to the sector.

“Our goal is to accelerate the development and commercialization of products formulated with Solazyme’s tailored high oleic algal oil,” said Bergonzi. “Solazyme’s unique product complements our portfolio and breadth of specialties. It delivers exactly what we need – a bio-based, algae-produced oil that we believe outperforms the traditional petroleum based products in lubricants and metal working fluids.”

In October, KDG entered into an exclusive agreement to distribute BASF’s diols and polyalcohols in the North America CASE market – through Ribelin in the South Central US and GMZ in the Midwest/Ohio Valley region.

Other supplier wins in 2013 include Cabot’s fumed silicas and carbon black for the CASE market through E.W. Kaufmann, and Kronos’ titanium dioxide (TiO2) for the CASE and plastics markets through E.W. Kaufmann and Monson, respectively.

By Joseph Chang