With the completion now imminent of the mega-merger between Praxair and Linde, the uncertainy is removed and the global gases industry can refocus on what lies ahead and arguably what it does best – innovating.
That’s the view of John Raquet, former industrial gas professional, consultant and CEO and Publisher of gasworld.
Praxair and Linde have announced the near completion of their $90bn merger of equals, over two years since the prospect was first mooted and 16 months since an agreement in principle was reached. With it, the single biggest player in the global industrial gases business is created and the landscape of the industry is transformed worldwide.
That timeline has been filled with speculation and conjecture, and a very high-profile assessment process by regional competition authorities, particularly in Europe and North America.
Some believe the industry has collectively been a little ‘distracted’ by the merger over the last two years where other M&A is concerned; many companies have been hesitant over their own business deals and direction as they await news of the big deal unfolding.
Whether that is the case or not, Raquet believes the conclusion of the deal provides the opportunity for the industry to move forward again and refocus on what it does best – innovation and value creation.
It is perhaps ironic that both this merger of Praxair and Linde and the $13.4bn acquisition of Airgas by Air Liquide in 2016 occurred at a time when growth within the industry was slow to flat at best, depending on the region, and were predicated on maintaining growth in shareholder value. The first-half 2018 business climate has been very positive, however, with underlying growth of 6% representing the best first-half period in the industry in years.
Despite this, Raquet points to the sheer number of companies operating in the industry globally as indicators of the scope for further inorganic growth. Speaking to gasworld before completion of the deal, he explained, “The big merger of two companies presents opportunities for SME companies, as the big merger parties need to take time to integrate and that usually takes longer than 12 months. So the SMEs have the opportunity to review their strategies and openings.”
“I think we are seeing a positive return to organic growth and this will continue through 2018 and 2019, assuming no major economic correction or conflict. But we must remember, there are 6,000 companies in the gas supply chain around the world, which accounts for circa $20bn in value, so there is scope for continue SME consolidation.”
Now that the big deal has been rubber-stamped and the stars are aligned for the industry’s major players, it could be argued that opportunity exists to refocus efforts in R&D and innovation.
The gases industry has notably cut back on R&D expenditure as a relative percentage of sales in recent decades, part of which had been masked by the growth via globalisation during the 1990s and subsequently the higher sales revenues achieved by demand for gases and higher pass-through energy costs in the 2000s. A perceived lack of investment in innovation was exposed during the slowdown in industry growth in more recent years, however, and there have been calls for renewed R&D commitment as a result.
Asked whether the time is now to renew the focus in this area and innovate solutions for the application and energy challenges of tomorrow, Raquet enthused, “Yes, there has been a lack of investment in innovation over the past 15-20 years, but we have been seeing this corrected over the past 3-5 years and I expect our industry to lead in environmental applications – hydrogen, carbon capture and more.”
“Also at the tonnage end – major gasification projects are developing more cleaner burn technology.”