Market outlook: KODA sees growth in key vertical markets

The US chemical distributor is seeing strength in its CASE business and is targeting further acquisitions in specialty ag and pharmaceuticals/nutrition

KODA Distribution Group (KDG) – one of the fastest growing US chemical distributors with annualised sales of over $600m – is setting its sights on expanding key vertical markets through both organic growth and mergers and acquisitions (M&A).

One major vertical – the coatings, adhesives, sealants and elastomers (CASE) market – is showing signs of strength.

“It’s been a strong year so far for CASE, along with personal care and specialty ag, and we’re well positioned for a strong 2015,” said Frank Bergonzi, CEO of KDG.

“Our CASE business is being supplemented by new supply deals with Huntsman, US Zinc, Dow and Momentive. That market overall has been fairly flat over the last few years, but now we’re seeing a nice surge in coatings,” he added.

KDG unit Monson’s warehouse in Massachusetts serves the lubes and fluids market Copyright: KODA Distribution Group

The acquisition of US-based CASE distributor E.W. Kaufmann in May 2013 solidified KDG’s presence in the segment and filled a geographic gap in the US northeast, said Bergonzi.

“The acquisition is going very well and integration has been extremely seamless. Now we are set in this sector with a full national footprint,” he said.

In July 2014, KDG announced that its GMZ division will distribute epoxy resins and specialty components for Huntsman Advanced Materials in the US.

In June 2014, KDG picked up the distribution of Momemtive Performance Materials’ silanes products in the US through three of its CASE subsidiaries.

TARGETING M&A
KDG aims to grow through additional acquisitions as well. “Our biggest focus on the M&A front is adding specialty ag and pharma/nutrition assets to further strengthen our verticals in these high growth markets,” said Bergonzi. “A deal is more likely to happen in 2015.”

Following a series of acquisitions in 2013 and 2014, including E.W. Kaufman and The DeWolf Companies, KDG is “fairly well set” in its other key vertical markets in CASE and personal care ingredients, he noted.

“We could enter other sectors within specialty ag that we’re not already in, such as turf and ornamental,” said Bergonzi.

KDG’s purchase of Specialty Professional Products (SPP) in October 2013 marked its first foray into specialty agricultural chemicals for mosquito control, vegetation management, forestry and range and pasture. And its January 2014 acquisition of Marcor established its presence in the pharmaceutical/nutrition market.

Longer term, KDG is considering the oilfield chemicals space which would be a new vertical market for the company. However, it will focus on sustainable organic growth in its current key markets of CASE, personal care/HI&I (household, industrial and institutional), specialty ag, pharmaceutical/nutrition, and lubricants/metal-working fluids.

FURTHER US CONSOLIDATION
Bergonzi sees further consolidation in the US chemical distribution sector but emphasises the importance of keeping a regional and market focus.

KDG’s focus is on the US and Canada with no plans to expand into other geographies.

The company considers its five applications labs a key competitive advantage, making sales more “sticky” as customers can work with KDG to develop custom formulations.

“We have 8,200 customers who can’t get access to our suppliers’ labs as they are too small. We fill a void with technical service and lab expertise for our small customers,” said Bergonzi.

KDG plans to open its sixth lab – focusing on personal care – in Wisconsin in early 2015.