Issue Date: July 23, 2012
Spain’s Panreac Aims For The Global Lab Chemicals Market
The fine and lab chemicals business has a mystique of the scientific entrepreneur about it. This is especially true in Southern Europe, where small chemical firms still dot the map. Companies that start small tend to stay small, however, unless they grow through acquiring, being acquired, or both.
Panreac, a laboratory and fine chemicals firm near Barcelona, has followed just such an up-from-the-basement trajectory. Having changed hands between venture capital firms before being acquired in 2010 by a diversified U.S. corporation with an aggressively acquisitive growth culture, the Spanish firm now views itself as ready to go head-to-head with giants in the global lab chemicals market even as it branches into fine and custom manufacturing.
The story began in 1941 when José Esteban Ferrer, a physician in Barcelona, launched Panreac with the ambition to establish the leading supplier of chemical reagents to the Spanish market. The family-owned company had reached its founder’s goal by the time it was acquired in 1998 by Bridgepoint Capital. Bridgepoint pushed to expand Panreac’s business to other markets before selling it to 3i, another venture capital firm, in 2005.
To head the transition from regional to global player, Bridgepoint hired Joan Roget, a BASF executive with experience managing fine and specialty chemical businesses in Southern Europe, as managing director of Panreac in 2003. Roget went on to advance 3i’s plan to diversify and globalize Panreac by acquiring Nova Chimica, a logistics firm in Cinisello Balsamo, Italy, in 2008, consolidating a lead position in supplying lab chemicals in one of Europe’s most active markets.
“When I joined, the company was already selling internationally,” Roget says. Panreac has since expanded to Croatia, South America, and Africa. “Our customer base is evenly distributed between pharmaceuticals, research, food, and general chemicals.”
Panreac also began moving beyond laboratory chemicals. “We have always had lab reagents as our main product. It is the origin of the company and the biggest part of our business,” Roget says. “But we realized we had the knowledge and the processes to purify chemicals. So why not use it to have some contract manufacturing with pharma companies?”
The firm started offering contract services for drug intermediates in 2004, Roget says. Although this is a small part of the business, Panreac’s facility just outside Barcelona meets the current Good Manufacturing Practices standards set by the U.S. Food & Drug Administration.
The company’s product line expanded to include chemical reagents, solvents for high-performance liquid chromatography (HPLC), food chemicals, growth media, histology products, and fine chemicals.
By 2010, Panreac was doing more than half of its business outside Spain, and it caught the eye of executives working in the chemicals division of Illinois Tool Works, an $18 billion-per-year U.S. industrial conglomerate. ITW saw Panreac as the perfect foot in the door to a $9.4 billion global market for chemical and biological reagents and acquired the company from 3i.
ITW folded Panreac into its performance polymers and fluids group, a chemicals division that represents about 11.8% of total sales. Juan Valls, executive vice president of the group, sees the potential for doubling, if not quadrupling, Panreac’s current annual sales of about $60 million within a few years via a string of acquisitions. His ultimate goal is to launch the business as a new reagents and life sciences group within ITW’s chemicals division.
Like other divisions at ITW dealing with auto parts, power systems, food equipment, and decorative surfaces, ITW’s performance polymers and fluids group has grown through a series of acquisitions. It is composed of more than 50 companies divided into four business platforms: polymers, including additives for sealants and coatings; fluids, including greases and degreasing chemicals; automotive aftermarket, including fuel additives; and hygiene, including cleaning products and lab reagents.
Spain has emerged as a hub of chemicals activity for ITW since the firm’s 2004 purchase of Krafft, an automotive aftermarket company based in Guipúzcoa. Krafft, along with Wynn’s, a Belgian oil additives firm, and Permatex, a U.S. automotive adhesives and sealants company, both acquired by ITW, make up the bulk of a $490 million-per-year automotive aftermarket business.
“We call this segmentation at ITW,” Valls says about the strategy of growing businesses through acquisitions that lead to the spin-off of new units. “For example, ITW’s construction segment was born in the automotive segment where we started producing screws 80 years ago. We segmented and started making screws for construction.” He foresees a similar trajectory for Panreac. “If we get the returns we want and are able to complete a few focused acquisitions, we can double Panreac’s sales in two to four years.”
Valls emphasizes the primary importance of organic growth, but he sees acquisition as key to meeting objectives at Panreac. He notes that the company has already made its first acquisition under ITW, buying AppliChem in Darmstadt, Germany, last year. Engineered by Roget, the move added biologics to the company’s menu of small-molecule reagents.
According to Agustín Ruiz de Munain, director of ITW’s hygiene group, Panreac’s lineup of small- and large-molecule reagents, laboratory chemicals, and fine chemicals is a foundation for growth under its parent company’s strategy of serial acquisitions. Although ITW has no specific target, Ruiz de Munain says it is interested in acquiring firms that have between $30 million and $50 million in annual sales—large enough to pursue their own acquisitions, just as Panreac pursued AppliChem.
“Once a new company is integrated and understands the philosophy of ITW, the target is for that company to make acquisitions,” he says. Emerging markets are of special interest.
Panreac operates in a global lab chemicals market where about 60% of the business goes to a handful of large, multinational companies, according to Ruiz de Munain. The Spanish firm’s goal is to increase its share of the remaining 40% of the market that is served by regional players. “We want to be the biggest of the smallest,” he says.
Roget adds that Panreac is highly competitive with the majors in its primary markets in Southern Europe. He emphasizes that Panreac’s background in chemistry gives it a leg up as it develops its business in drug intermediates and other fine chemicals, a journey Sigma-Aldrich took that led to the launch of SAFC 10 years ago.
Panreac places a high priority on customer service, according to Roget. When the laboratory world experienced a shortage of the HPLC solvent acetonitrile three years ago, he notes, Panreac was able to supply the chemical. Its enviable supply position presented the company with an opportunity to gain new business, but Panreac focused instead on serving its existing customers.
Industry watchers agree that Panreac’s growth objectives are ambitious and that acquisitions will be key to advancing. Liz Sands, a consultant with A. T. Kearney in London, says Panreac’s customer focus, honed in its days as a local supplier in Spain, will also be important to its success.
“The challenge for such organizations is to ensure that they have the processes in place to scale up without overindustrializing,” says Sands, who previously managed a partnership program at 3i. Sands says Panreac has managed to maintain its close ties to customers despite its expansion over the last several years. “They’re focused on not becoming too bureaucratized,” she says.
Operating within a major industrial conglomerate will help support Panreac’s growth ambitions, Roget says. So will its strategy of developing a network of outside distribution companies rather than establishing itself as a distribution firm. He says ITW provides stability and the kind of growth-oriented culture Panreac will need to advance.
“ITW has a clear industrial concept and a U.S. business tradition,” Roget says, noting that he finds the culture similar to that at BASF.
Valls adds that Panreac as a whole has made an easy transition from family and venture capital ownership to becoming part of a diversified multinational firm. “They prefer us,” he says, “because we offer some continuity and an industrial plan in which Panreac can grow to become a business platform with as much as $400 million in sales.”
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