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2006 M&A Update



While 2006 showed signs of a pickup in merger and acquisition activity in the paint and coatings industry, buyers nevertheless remain cautious.



By Stephen Einhorn & Jaclyn Christiansen



Published February 6, 2007
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During 2006, there were 17 merger and acquisition transactions in the U.S. versus 12 in 2005. Most transactions demonstrated a desire to strengthen market presence, either in a specialized niche, or a geographic area.

PPG was the most active acquirer during 2006 purchasing Ameron Protective Coatings, Spectra-Tone, Eldorado Chemical and Shanghai Sunpool (China).

The PPG/Ameron transaction was not a surprise as the fit was perfect. PPG's strategy has been to focus on its coatings business, and the Ameron acquisition, at a price of approximately $115 million, was a major transaction in the industry. The acquisition expanded PPG's protective coatings sales into Europe and Australia enhancing their global presence. The deal also included a marine business, for which PPG previously had a minimal presence.

The acquisition of Spectra-Tone, a smaller transaction, increased PPG's sales of architectural paint and continued the company's strategy of expansion through acquisition. At the time of the acquisition, Spectra-Tone operated 22 stores in the western U.S.

In May, PPG acquired privately held Eldorado Chemical, a manufacturer of paint strippers and technical cleaners for the aerospace industry. The acquisition included formulas, brand names and product certifications. Eldorado's products featured environmentally advanced technologies and were complementary to PPG's aerospace business. Eldorado's customers included the military, airlines and OEMs.

China is Hot



PPG's acquisition of Shanghai Sunpool is an example of the continued expansion by U.S. companies into the Chinese paint and coatings market. Shanghai Sunpool is a manufacturer and distributor of coatings and building materials, and distributes PPG's Master's Mark architectural paint. The acquisition included trade names and manufacturing and warehousing assets, and enhanced PPG's production and distribution capabilities in China.

Other major paint firms have taken an interest in China as well. This includes Akzo Nobel, who acquired full control of its Asian Akzo Nobel Chang Cheng Coatings joint venture in May. This was a powder coatings operation in China, Taiwan and Hong Kong with six manufacturing sites, including four in China.

DuPont announced it will open a coatings plant in Shanghai, China to meet increased sales. The Shanghai plant is DuPont's tenth coatings investment in China in response to that growing market.  

In June Valspar agreed to acquire a majority of the share capital of Huarun Paints, one of China's largest independent paint companies. Huarun's 2005 sales were approximately $180 million, which will significantly bolster Valspar's presence in wood and furniture coatings in China.

Valspar jumped into the acquisition arena again in October with the purchase of H.B. Fuller's powder coatings business. The acquisition gave Valspar an entry into the European market and fits well with its North American powder coatings business.

In August, Akzo Nobel acquired The Flood Company, a leading independent wood finishes business in the U.S.  With sales of approximately $55 million, Flood will increase Akzo's strength in the U.S. wood care market.

In October Nippon Paint finalized its purchase of the automotive coatings business of Rohm and Haas. The acquisition, along with purchases of Rohm and Haas' share of the joint venture Morton Nippon Coatings, gives Nippon a leading position in the North American plastic auto coatings market.

Another significant U.S. paint transaction during 2006 was the acquisition of Color Wheel Paint by PPI, the U.S. subsidiary of Comex.  Color Wheel is a major Southeast manufacturer of architectural paint with 37 stores and a strong brand name. The acquisition shows Comex's continued strategy of increasing its presence in North America.  

In August, Quest Specialty Chemicals, through Huron Capital Partners, acquired Matrix System Automotive Finishes. Matrix is an independent supplier of auto aftermarket refinish coatings and was combined with Quest's Raabe Corporation subsidiary. The acquisition strengthens Quest's presence in niche specialty performance coatings.

Another example of an acquisition of a niche coatings company was ITW's purchase of CFC International. CFC is a specialty coated film manufacturer which includes transferable, multi-layer coatings for use in holographics, packaging, furniture, pharmaceuticals and transaction cards.  

In August, Insl-X Poducts acquired Trinity Coatings' wood coatings division, which fits in with Insl-X's goal of strengthening its wood coatings business and is a good add-on to the acquisitions of Coronado and Lenmar.

Michelman made two acquisitions during 2006. In May, the firm acquired Wagers Corporation, which enhanced Michelman's portfolio of water-based decorative coatings. In June, Michelman acquired Fischer Pro, a manufacturer of non-skid coatings for corrugated cartons and bags. Both of these acquisitions were attractive to Michelman due to the technology and reputation of the acquired businesses.

RPM made one acquisition last year which was of Tamms Industries. Tamms is a manufacturer of high performance restoration protection and waterproofing products for the concrete construction industry. This business fits in well with RPM's Euclid Chemical concrete and masonry construction chemicals.  

Altana's acquisition of Rad-Cure strengthened its market presence in North America with its sales of overprint UV curable coatings and adhesives for the paper and packaging industry.

The above transactions illustrate the continued trend of "sticking to what one knows best" and increasing market share in growing product sectors or regions. It also appears that "China is hot, but Europe is not."

During 2006 most paint companies improved their margins, and buyers continue to be ready for more acquisitions. However, buyers are still cautious and are taking their time to confirm their acquisition decisions, making sure that every question and issue has been taken into consideration. This prolongs the deal process, but in the end leads to more successful transactions.

In general, sales and profits were more robust during the first half of 2006 and this gave sellers the ammunition to better justify their offering prices and buyers more confidence to put forth market value offers. As a ballpark guide, prices for small and reasonably profitable acquisitions remain at approximately five to six times EBITDA. Larger companies with outstanding results and growth prospects in our field are selling for up to eight times EBITDA.


Stephen Einhorn is president and Jaclyn Christiansen is vice president of Einhorn Associates, Inc., Milwaukee, WI, where they have specialized in paint and coating's mergers and acquisitions for many years. They can be contacted at einhorn@einhornassociates.com.


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