Swapping the cut-and-thrust of a listed company to be CEO of a mid-sized German pigments company based next to the Swabian Alps could indicate a desire for a quieter life, away from the glare of shareholders and volatile stock markets. That’s not what Stefan Doboczky, the new CEO of Heubach Group, signed up for.
Family-owned Heubach recently got together with New York-based private equity firm SK Capital Partners to acquire a larger rival from Switzerland’s Clariant, instantly creating the global No. 2 pigments maker with more than EU1 billion in sales. Not the standard behaviour of a Germany Mittelstand company (an SME) and Doboczky, the former CEO of Vienna stock exchange-listed Lenzing Group, has the task of taming a melting pot of ideas.
This unusual marriage didn’t come out of the blue. Heubach has been making pigments for 200 years and could see which way the wind was blowing.
For the past 30 years, the focus of coating companies has been on solvents and VOCs and how to reduce emissions and increase the solid load (what’s left behind on a painted wall once the solvent has evaporated). Paint — a mix of resin, pigments, additives like stabilisers, and solvent — started to evolve: along came powder-coatings, water-based paint and ultraviolet curing.
Now the pigments used on your car or in the plastic on your hoover is in the frame. In a typical coating formulation, pigments can account for 2-5% of the weight, but as much as 25-30% of the carbon footprint. Likewise, an average ton of resin will have created 2-6 tons of CO2. A kilogram of pigment can be anywhere between 10 and 60 kilograms of CO2.
“Pigment is a super carbon-intensive product,” Doboczky said in an interview with chemicalESG. Global coating companies like PPG Industries, AkzoNobel and Sherwin-Williams are making increasingly complex and sophisticated demands on their suppliers to reduce their Scope 3 emissions, he said.
There is a growing need to have global reach and scale to address environmental issues so no wonder consolidation in the industry has started to pick up. Inventing new formulas and manufacturing techniques is a costly process. DIC-Sun Chemical acquired BASF pigments to cement the No. 1 slot.
The Heubachs knew it was time to make its move and SK Capital had the financial clout and M&A experience to help make it happen.
“Smaller players struggle,” said Doboczky. “The family has proven to be pretty adaptable as to what needs to happen to still be around in the next century. You need a certain critical mass, you need a certain product range, otherwise it’s going to be very difficult to afford those expenses.”
With the addition of Clariant’s Colorants business, Doboczky now feels Heubach’s portfolio is hard to match as it spans inorganics, anti-corrosives, organics and dyes, with a footprint reaching India, Latin America and Europe.
Pigments have historically relied on aromatic solvents and some pretty harsh compounds, like lead sulfochromate yellow and lead chromate molybdate sulphate red. Lead chromates are classed as a neurotoxin and it took a lawsuit brought by Sweden to help persuade the European Commission and last-man standing Dominion Colour Corp to give them up.
The pigments industry is highly competitive but ESG is helping the market move away from commoditisation toward more complex functionality, sustainability and product-stewardship. What had been an industry gravitating toward low-cost producers in Asia is now starting to swing back toward more local production and innovation. But there have casualties during the current energy crisis and supply chain disruption. DCL Holdings, as Dominion is now known, filed for Chapter 11 bankruptcy at the end of 2022.
“The sophistication is such that good processes, reliability of supply chain, and ESG are going to be as, or even more important, than lowest cost,” Doboczky said.
These days, pigments are increasingly dispersed in water-based solutions or some other carrier and the big players like Heubach want to get out in front of legislation and the demands of consumers and customers alike. In Europe, the use of cadmium pigments is highly restricted, even in some safety applications. Small wonder that zinc-free anti-corrosives is currently one of Heubach’s top growth areas right now.
“This is a really positive trend and a potential differentiator rather than a negative,” the CEO added. “We need to structurally green up the value chain.”
For Heubach, that means adjusting processes to use renewable energy and recycled waste. And there’s potentially a fermentation route to manufacturing some products, but Doboczky was staying tight-lipped on that. He already turned Lenzing into a sustainability leader in his previous role.
“We will do the same at Heubach,” Doboczky said. “If you really want to serve the Akzos, the Sherwin-Williams and the PPGs of the world, this is what we have to do.”