AkzoNobel has had more reinventions and strategy changes over the years than most of the chemical sector put together. That’s how HSBC chemical analyst Martin Evans put it in a report back in 2018. It was two years into Thierry Vanlancker’s CEO mandate, and Evans and peers were questioning whether this latest transformation would finally work out.
The jury can take their seats. After six years, Vanlancker’s time is coming to an end this week. I sat down with him for one last interview to get his thoughts on where AkzoNobel is at now and what will be his next gig. (Spoiler alert: reports of his move to Solvay are greatly exaggerated.)
During his time at AkzoNobel, the 57-year-old Belgian divested an EU10b chemicals business, fended off an activist and a takeover attempt by PPG, and navigated through Covid and the current mayhem. Headline grabbing stuff but there was no large acquisition or merger of equals to follow the 2008 purchase of ICI. Instead, Vanlancker went deep into the weeds to transform a company known for missing estimates and put it on a level peg with leading peers. His final move last week was binning an EU2 billion EBITDA target for 2023 to avoid saddling his successor with baggage. Incoming CEO, Gregoire Poux-Guillaume, is AkzoNobel’s second leader to come from Swiss pump maker Sulzer AG, and he will need time to get a feel for a new industry.
“It would have forced someone who is new and wants to do the right things to actually start doing things too fast without the time to think,” Vanlancker said. “What truly sucks is leaving the company at the moment when the cycle is actually pinching results. As a human being, you want to leave on a high. I shot the arrows I had on my bow. Some of them I’m pretty proud of where they landed and, some others, maybe someone else could have shot them better.”
Poux-Guillaume takes the helm of a group on par with the likes of PPG and Sherwin-Williams. Vanlancker recalls when he joined and found fatigued employees without the right processes and tools to hand. They are now energized and have become data junkies. AkzoNobel is 95% run on SAP solutions, complete with Master Data, Data Integrity, and forecasting systems: in fact, one of the best in the game now, he said. This played out well in all the recent supply-chain disruption. Going back 20 years, AkzoNobel was known for missing the boat on every single raw-material cycle. This time around, it was out front with pricing actions, he said. That’s just one area of improvement.
Four years on from his initial report, I checked in with HSBC’s Evans for an update on how he views AkzoNobel and Vanlancker’s time there.
“The main benefits of the turnaround were derailed by Covid and then cost inflation due to globally surging commodity costs,” Evans, head of European Chemicals Research at the bank, told chemicalESG. “However, as raw materials decline in 2023, the positive benefits of Thierry Vanlancker’s actions should become more visible to investors.”
With all that’s been going on, Vanlancker must have been some pretty dark days, and I wondered what would qualify as his worst. Afterall, there was that day back in 2017 when he flew out to the US to hold takeover talks with Axalta Coating Systems, only to find out management of the automotive refinish and OEM paint maker were on the other side of country meeting a rival instead.
“That doesn’t qualify as the worst moment: you can only be upset around things that you can control. We were extremely transparent, extremely constructive in that conversation. The other side of the table decided to do something completely different, and not be upfront about it. As my mother would say: “We didn’t buy anything, but we didn’t spend our money either.””
So, on the topic of spending money and M&A, I asked Vanlancker to imagine he was on one of those TV dating shows like “Are You The One” or “Take Me Out.” He is the person who has to pick a prospective love-match from a group of contestants. To make it easier, I narrowed it down to the following choice:
b) Benjamin Moore
Vanlancker protested against the bias and tried to claim batchelordom. Under duress, he eventually picked Jotun, as “the combination of decorative, marine and the protective side would create some strong global leaders.”
A frivolous exercise, granted, but one that reflects Vanlancker’s view on M&A in general. He graduated from Ghent University with a master’s in chemical engineering, and it’s the engineer, rather than the dealmaker, that runs deep in him.
“The unfortunate thing with consolidation is there is a fixation on the big players getting together, and then it’s increasingly complicated and overlapping. Big deals don’t always deliver what you expected.”
By contrast, there’s a number of medium-sized players that would be a great fit for AkzoNobel, but they tend to be family businesses and in no mood to sell. “It’s not dating, it’s daydreaming,” Vanlancker said.
But M&A in the paint-and-coatings industry could well evolve as “everyone’s hanging around with too broad a portfolio.”
The next two to three years won’t be the best in terms of the market: significantly less growth in China for the foreseeable future and a slowdown in Europe and housing starts. That will lead to some de-risking of parts of the portfolio and sweating of assets, including those upstream. In AkzoNobel’s case, it does have reactors for ingredients like resins and they can be used in a much more optimal fashion, Vanlancker said.
“There’s been real vulnerabilities in raw materials and over the next two to three years, growth will be more complicated. Companies will look at their portfolio and look at their sourcing: the make or buy option. The industry is going to turn to operational improvements rather than deals and growth.”
Those coating companies undertaking M&A could take a different approach.
“If you could have your life over again, you would probably look at 5, 6, 7 parts and reassemble it in a different way. That may still start happening instead of people buying all of a company. You could probably see other combinations of businesses that would be more powerful in the industry.”
And finally, to Vanlancker’s future. One analyst on his final earnings call expressed annoyance that he is cutting his tenure short. He signed a two-year contract that ended at the start of 2023, and could have resigned. But that wasn’t in his plan.
It would be bold to bet against another role in the materials and chemicals space, where Vanlancker has spent the last three-and-a-half decades, including spells in fluorochemicals at DuPont and Chemours.
“I’m not ruling anything out, but I do have to surrender to the idea that my competence is in that area. Could I be leading a fashion house? Maybe. But I would have to start from scratch. What excited me the most at AkzoNobel was transforming something. You have to understand what you are working with and understand one or two levels deeper than just flying over. Maybe it’s the engineer in me, but I would feel more comfortable understanding something at some level of detail to transform it than just trust in guru-like instincts. I will probably gravitate more toward the materials and specialty chemical type of industry. It’s a large zone but it’s my comfort zone.”
Vanlancker didn’t rule out private equity in his chosen field. He said he finds the cyclical chemical businesses trading at 2-3x multiples “laughable” and is of the opinion that listing a company may not be the best set up. Given the macroeconomic outlook, there’s something to be said for alternative structures like privately held or sponsor-owned firms, he added.
Vanlancker will maintain his connection to Amsterdam, but he and his family have bought a house in Belgium to spend more time there. It’s no surprise that many are linking him to Solvay as it splits into EssentialCo and SpecialtyCo.
“It’s increasingly being positioned as a fact. The only person that doesn’t know about it or has been approached about it by anybody is me,” he said.
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