Where is the Industrial Gases Mega-merger Trail Heading?

The global Industrial Gases industry has been dominated by about 5 major players controlling more than 70% of the market.Recently, strategic business alliances have begun to augment the already heavily consolidated market towards further market consolidation. In early 2016, the number of players shrunk to four when Air Liquide acquired Airgas. Now, Praxair and Linde are exploring possibilities to merge. If this merger is accomplished, it will further reduce the number of major players to three.

With talks of a merger in its early stages, the Praxair and Linde deal would result in a global market share of about 40% and annual sales of close to $28 billion, making it by far the world’s largest gases firm.

The resulting high market concentration from the Praxair and Linde merger could have an adverse impact on the price of industrial gases at a time when major buyers, especially in the oil & gas industry, are struggling to recover from the oil price crisis. Any further increase in market concentration will certainly have antitrust authorities scrutinizing the merger even more strictly.

While the market may exhibit distorting trends in the form of oligopoly, merger and acquisition deals are a win-win for the deal-makers. The last mega-deal was closed in May 2016, when Air Liquide acquired Airgas for $13 billion. It is estimated that the combined businesses will generate annual sales of more than $22 billion, employ approximately 68 thousand people around the world, and serve well over 3 million customers. The acquisition allows Air Liquide to expand in the U.S., the largest global market for industrial gases, and extends its customer base by more than one million. It will also benefit from the most advanced multi-channel distribution network in the U.S., including e-commerce and telesales capabilities. Air Liquide is projected to become the leader in North America, after having already clinched that spot in Europe, Middle East and Africa, and Asia-Pacific.

Regulators have already had a tough time with the Air Liquide-Airgas deal and it is likely that antitrust agencies will make decision a similar decision with respect to the possible Praxair-Linde merger.  The deal, which will create the world’s largest industrial gas company with a market value of more than $60 billion, may witness some kind of divestitures.

According to the current market distribution, Air Liquide has 29% of the U.S. industrial gas market, Praxair has 21%, Linde has 15%, and Air Products has 14%. A merger of Praxair and Linde would give the combined company 36% of the U.S. market share. In Europe, Air Liquide has 32% of the market, Linde has 30%, Air Products has 13% and Praxair has 7%.

In future, it will be interesting to observe the changes to the industrial gases market. Next in line, after the big players, are tier 2 suppliers such as the BASF, Messer Group, Matheson Trigas, GruppoSapio, and SIAD. These suppliers will need to fight harder to survive alongside the emerging giants of the industrial gases supply space and may also, in the medium to long run, build a strong regional base of customers via strategic moves such as price undercutting. This will counteract the recent market concentration, resulting in the top 5 players controlling about 55% of the market over the next three years. Implication for strategic buyers: engage second tier suppliers in competition to stimulate and accelerate the return to more balanced market conditions.

How West African National Oil Companies Can Raise Their Equity Stake in Upcoming Projects from 15% to 50%

shutterstock_80954569Ghana National Petroleum has 15% ownership of the Deepwater Tano Contract Area. The other 85% of the ownership went to Tullow (47%), Kosmos Energy (17%), Anadarko Petroleum (17%), Sabre Oil & Gas Holdings Ltd, a wholly owned subsidiary of Petro SA (4%) (percentages are approximate).

In contrast, Sonangal holds 41% of the Mafumeira Sul project in Angola (Chevron holds 39%, Total holds 10 percent, and ENI holds 10%), and NNPC holds 40% of the Escravos project in Nigeria (Chevron holds 60%).

How can Chad, Côte d’Ivoire, Liberia, Mauritania, Cameroon, Niger, Gabon, Namibia, Sierra Leone, and Equatorial Guinea get a higher percentage ownership of projects in their own backyard? Low equity figures imply that partners are contributing 85% of the value, and by extension that the locals are only remunerated for their natural resource.

These countries can change the game by increasing their local supply chain competence upward toward a target of 50% of the value of the projects – more than the Nigerian and Angolan equity in the aforementioned deals, and just under the minimum target that Nigeria has set for the ensemble of sub-industries in its oil and gas sector (the minimum local content is 54%, on average).

The key to earning more equity is to accelerate the development of local capabilities that are: 1) critical to project execution; 2) that can be incrementally more profitable than the average oil and gas supply industry; and 3) that can meet oil companies’ qualification criteria within a relatively short investment timeframe.

Generally speaking, they can achieve most of these objectives by developing the following six industries:

  • Pressure vessel fabrication
  • Pipe fabricating and installation
  • Compressor manufacture, assembly, and maintenance
  • Well and drilling services
  • Pump and valve assembly and light manufacturing
  • Water treatment equipment and services

Boston Strategies International offers hands-on capabilities to help establish the needed capabilities in oilfield applications of each of these industries. Click here to ask us for our relevant qualifications in:

  • Formation of alliances with leading technology partners
  • Design and construction of facilities
  • Training and development of  local labor force
  • Management and supervision of operations

Note: Image courtesy of AHFRO.

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