When water chemical suppliers become DJs

Published May 3rd, 2018

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Insight from Christopher Gasson, GWI publisher

Solenis pulled off a big deal today, combining its water treatment and paper manufacturing chemicals business with that of BASF in a joint venture which leaves it with 51% of the company. The combined business will have annual revenues of €2.4 billion, putting it just behind Kemira, which had revenues of €2.5 billion in 2017. The deal is thought to enable Solenis to overtake Kemira as market leader in supplying chemicals to the paper industry (which represents more than 50% of revenues for both companies).

One of the interesting points about the deal is that BASF will continue to manufacture many of the chemicals sold by the Solenis JV at BASF sites in Ludwigshafen (Germany) and Nanjing (China) under a long-term supply agreement. The reason why BASF is selling the business but holding onto the manufacturing is because production is “fully embedded” in BASF’s production system. It is a neat answer to the question: how can a chemical company be customer-focused when its products sell across so many different industries? By keeping the “fully embedded” production within BASF, the company can continue to maximise its production efficiencies, leaving Solenis to focus on developing solutions for its customers in the paper and water industries.

The last 20 years have seen a great divide opening up between bulk chemical manufacturers and specialty chemical manufacturers, on the basis that bulk chemicals are a production-driven numbers game, whereas specialty chemicals are more about applications development and marketing. The idea of separating the chemicals production side from the applications side is the next logical step.

When Clayton, Dubilier & Rice bought Ashland’s water treatment chemicals business in 2014 and renamed it Solenis – “where solutions have their genesis” – it seemed laughably corny. The kind of thing that only American executives, extravagantly soused in share options, can pull off with a straight face. Now I feel that I should take my hat off to them. Seeing the old Ashland business as a solutions business rather than a chemicals business is the first step in a transformation which is necessary for the industry and its customers. In time, I am sure that there will be “chemicals” companies who make no chemicals. Instead, by mixing, looping and sampling other people’s work, they will find ways of driving their customers to delirium. They will be the DJs of the water business.

Will John Panichella, the sober-suited CEO of Solenis, be able to seize Avicii’s crown? There is tough competition. Ecolab, the market leader in water treatment chemicals, has the edge in digital delivery. Suez, meanwhile, has a progressive vision that does not recognise traditional boundaries of chemicals and technologies. Hey brother! There’s an endless road to rediscover.