This is not just industrial gas. This is industrial gas on the biggest scale. These are prime cuts of oxygen, nitrogen and argon, complemented by a crescent of steam methane reformed hydrogen, a selection of specialty gases & equipment, and related hard goods – currently served with a vignette of mouth-watering M&A activity.
Okay, that might sound like something from a commercial or the latest TV installment of a celebrity chef, but it’s not the worst description of the North American industrial gas market. There’s a ‘garnish’ of hyperbole in there, but there’s no denying that this is still the biggest of the global gas markets.
And it’s certainly a market attracting a great deal of attention at the moment, courtesy of the ongoing Air Products vs Airgas proposition of late if nothing else. Appropriately enough for gasworld’s June issue, Air Products recently extended its unsolicited tender offer to 4th June, so this may yet be the month where all is revealed.
First of all, let’s consider the size of the market and its performance of late. We might be forgiven for thinking that the market has succumbed to a financial contraction of a large scale. While that’s true to a certain extent, it’s also worth making two points.
Firstly, as the largest and one of the most developed of the global industrial gas markets, North America was always likely to suffer perhaps the most. With the recession hitting the US and Europe in particular, that much was inevitable.
Secondly, the markets are already in recovery mode and such is the stature of the North American gases business, that even in the face of contracting revenues, the region is still way out in front as the major global market.
Those revenues totalled $20.6bn in 2008, largely driven by the dominant US market valued at around $17bn alone in the same year. But it wasn’t until Q4 2008 that the first throws of recession began to impact upon the industrial gases business. By Q4 2009, there was no mistaking the mess the world was in and in turn, the stress this had enforced on the gases business.
This is perhaps best reflected in the revenues decline experienced in North America in 2009. Data and projections correct at the close of April (2010) suggest a year-on-year (YoY) decline of 12.3% in 2009, approximately. That would equate to a North American industrial gas business worth around $18bn last year – still the largest of all the regional markets.
That may well be a slightly deeper decline than we first expected back in December 2009 (then estimated at $19bn), but when the depressed market has been so uncertain, all projections are tinged with just a little bit of crystal ball-gazing.
All the current indicators are, then, pointing to 2009 North American industrial gas revenues of $18.1bn – this much we know. But what lies ahead?
Based on current data and market modelling, it’s thought that North America will reap revenues of $18.5bn this year, while the recovery should gather even more momentum in 2011 when revenues of $19.8bn are projected.
It’s early days to be making such predictions, and it might again be suggested that there’s a sense of smokescreens and crystal balls. Even so, current modelling anticipates another strong year in 2012, when projected industrial gas revenues of $21.3bn finally surpass the high levels of 2008.
A changing landscape
From the main course of market performance, to that intriguing vignette of M&A (mergers and acquisitions) activity: the ongoing Air Products and Airgas situation.
For those that may have taken their eye off the ball in recent weeks and months, major Tier 1 player Air Products made an audacious offer for fellow major player Airgas Inc. The very public tender was made in early February and actually represented the third attempt by Air Products to acquire the Airgas empire.
Fiercely rejected by the latter, the unsolicited proposal comprised of $60.00 per share in cash and represented a deal worth around $7bn in total. The proposal would provide a 38% premium to Airgas shareholders and, at the time, was 18% above Airgas’ 52-week high. Of that $7bn in total, around $5.1bn would have been equity and $1.9bn in assumed debt.
But what effect would any deal have on the landscape of the North America gases business?
With Airgas thought to be operating a North American packaged gas business valued at just over $1.7bn, any acquisition would have given Air Products considerable muscle in the market – anti-trust issues aside of course. A huge coup, it would also have brought a large customer base to Air Products; according to Spiritus, Airgas boasts a $4bn business, mainly at the cylinder end of operations.
In fact, gasworld understands, if successful in its tender then Air Products would have become a fully integrated industrial gas company in the US for the first time since divesting its cylinder business to Airgas in 2002.
If it had been successful, the deal would represent a huge shift in the industrial gas landscape in North America. Headquartered in Pennsylvania, the combined company would be the largest industrial gas company in North America and also one of the largest in the world, with distinctive strengths across all geographies and in all three distribution channels – packaged gases, liquid bulk, and tonnage.
At the time of going to press however, this was all just conjecture and theoretical. Airgas has continually underlined its unswerving reluctance to the prospect and sees the offer as ‘grossly’ undervaluing the company. For every statement of intent from a determined Air Products, an equally resolute Airgas delivers another cutting riposte.
At this point in our analysis, it’s useful to draw upon the observations and insights of a major player in the industrial gas business. We could easily eulogise about how the marketplace is recovering and North America is on the up again.
But what’s happening on the ground at the moment, midway through 2010 as we are?
Matheson Tri-Gas (MTG) is part of the world’s fifth largest supplier of gases and gas handling equipment and is itself a single source for industrial, medical, specialty and electronic gases. In addition, the company supplies gas handling equipment. And with Japan-based Taiyo Nippon Sanso Corp. (TNSC) as its parent company, MTG is able to draw comparisons between two of the markets hardest hit by the recession.
Further still, MTG has its ventures in emerging markets like Asia and Middle East too – so the company has even broader knowledge of how business is faring around the world.
In that respect, gasworld asked how the company sees the US and North America market in 2010. There’s a recovery-in-progress, we’re assured, and even if this is ‘tepid’ and ‘inconsistent’ in some industries.
Electronics in particular is enjoying a strong revival, representing a significant boost for consumption of both specialty gas and equipment.
MTG told gasworld, “Bulk gas demand has been consistent, and in terms of packaged gases, we are seeing tepid and inconsistent recovery in manufacturing industries. There are some signs of increased investment in capital equipment, although recovery has not been seen on a sustained basis in consumable items and welding gases. Power generation, specialty, analytical and medical gases continue to remain steady, and propane sales were strong in the heating season. There also have been good activity levels in agriculture and mining equipment markets, with some recovery in steel manufacturing.”
“The electronics industry is experiencing an overall revival in demand, supply and investment. This in turn drives an increase in the specialty gas and equipment business for Matheson Tri-Gas. We are seeing most geographies ramp production to full capacity in silicon semiconductors and compound semiconductors. Flat Panel Display production also continues to strengthen.”
“Photovoltaic is growing in certain areas and we are starting to see some technologies succeed.”