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.