France’s Saint-Gobain hunts for fresh acquisitions as part of sustainability push

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France’s Saint-Gobain is on the lookout for more acquisitions outside Europe as the construction supplier pursues a shift into more environmentally-friendly materials, its chief executive said. 

Benoit Bazin, who is also due to become Saint-Gobain’s chair next year, said the group still had “positions to take” in North America, Asia and in emerging markets after a roughly €7bn acquisition spree in the past five years. 

The company, which manufactures materials like glass for skyscrapers and soundproofing materials, has been making dozens of disposals in less profitable divisions or countries. At the same time, it has been investing heavily in chemicals like those used by cement makers to reduce their emissions, as part of a sustainability push.

“The bulk of the work is done. This being said, we still have ideas for acquisitions,” Bazin told the Financial Times, citing countries like India or Vietnam where the group does not offer the full range of materials it specialises in, like insulation products. 

The changes at Saint-Gobain, one of the world’s biggest construction suppliers by sales, with revenues of just over €51bn last year, come as the industry reels from higher borrowing costs. Rising interest rates globally have triggered a real estate slowdown, including in the US where the housing market has cooled.

The construction sector is also facing a reckoning as a result of its environmental impact. Buildings themselves and the energy they consume account for close to 40 per cent of all CO₂ emissions, according to many climate studies, including by the United Nations.

Saint-Gobain, which is known for making the mirrors in the palace of Versailles, had until recent years struggled to boost its profit margin. The company, which was founded in the 1600s and is one of France’s oldest, was also bogged down in a long and ultimately unsuccessful takeover tussle for Swiss chemical group Sika, which came to an end in 2018.

Since then, however, it has successfully pursued dozens of other deals, including the $2.3bn purchase of US-based chemicals group and concrete additives maker GCP in 2021.

Saint-Gobain is now a “light construction” specialist, focused on materials like plasterboard used for partitions, or timber or metallic skeletons for buildings, which are designed to have a lower environmental footprint. Close to two-thirds of its roughly €5bn in annual operating income that once came from Europe now comes from North America and emerging markets, as the European market has grown more focused on renovations instead of new builds. 

That shift, along with push into chemicals, has helped to improve margins, which reached a record 11.3 per cent in the first half of 2023. 

Bazin, a company veteran who became chief executive in 2021, said further acquisitions would not be “€1bn-plus” deals every time. He also shrugged off concerns that a market downturn could weigh down on future transactions, saying that blips in the real estate market were not universal or could turn a corner. 

“I’m confident the US will be resilient next year,” said Bazin, citing a promising labour market and big investments in factories and other areas. 

Bazin will take the chairmanship from Pierre-André de Chalendar in June next year, completing a succession some investors had pushed for to boost its share price. Chalendar has been at the helm of the company since 2007, including a stint as just chief executive.

Saint-Gobain shares are up 35 per cent since the start of the year, although on a two-year basis they are flatter, up closer to 2 per cent. 

The group’s sales are expected to fall in 2023, by roughly 6 per cent according to average analyst forecasts by Refinitiv, before picking up again in 2024, but price rises have helped the group’s margins prove more resilient.  

Some analysts have taken a dimmer view of the industry backdrop, with those at Berenberg highlighting that “trading remains tough for the group”, although Bazin noted that cost inflation in areas like energy or raw materials had now largely dissipated too. 

Additional reporting by Leila Abboud