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Paint transactions 2007



2007 has shown so far to be on the upswing in merger and acquisition activity.



By Stephen Einhorn & Jaclyn Christiansen



Published November 15, 2007
From Einhorn Associates' estimates, there were 18 transactions during the first eight months of 2007, versus 14 during that same time period in 2006. This year, we are experiencing the full range of transactions, from management buyouts of small (less than $5 million in sales), to huge mergers between coatings giants. The acquisition leaders so far this year are PPG, Akzo Nobel, and Sherwin-Williams.

PPG is repeating its 2006 strategy of being at the forefront of paint acquisitions with the acquisition of Champion Coatings and offers to purchase SigmaKalon and Barloworld. After the acquisition of Ameron last year, the purchase of Champion was a continuation of PPG's goal to increase its global market share in protective and marine coatings. The transaction included assets, brand names and formulations, but not the facility in Houston.

In July, PPG made an offer to purchase SigmaKalon Group from Bain Capital for about $3 billion. SigmaKalon is an international producer of architectural, industrial and marine coatings, and is a leading coatings supplier in Europe. The acquisition fits in with PPG's strategic geographic and market goals. It would give PPG a significant presence in the European architectural coatings market and would double European sales as a whole. It would also strengthen PPG's presence in protective and marine coatings.

Also during July, PPG reached an agreement to acquire Barloworld Coatings Australia, a leading Australian architectural paint manufacturer under the Taubmans, Bristol and White Knight brand names. This purchase complements PPG's 2006 acquisition of Protec, an Australian automotive refinish manufacturer, and makes PPG the largest coatings manufacturer in Australia.

Akzo Nobel has been a leader in acquisitions this year, starting with Chemcraft in May. This acquisition strengthened Akzo's position in the North American wood coatings market. It is a strategic fit with Akzo's Industrial Finishes business and adds about $150 million in sales.

Akzo Nobel strengthened its position in the international protective coatings market with the acquisition of the Ceilcote business from KCH (Germany). Ceilcote services a variety of industries, including power generation, mining, wastewater and chemical processing. The Ceilcote business both complements and adds to Akzo Nobel's market share in these areas.


Akzo Nobel's most recent offer to acquire ICI is the culmination of two months of negotiations which saw ICI rebuff two informal offers from Akzo before finally opening its books to the company following the latest offer. Pictured above from left is ICI CEO John McAdam and Akzo Nobel CEO Hans Wijers.
It looks like the magic number for Akzo Nobel to acquire ICI will be $16 billion. ICI entertained other offers, including from Dow Chemical, before granting Akzo Nobel access to ICI books after raising its bid to the $16 billion level. This whopper transaction will give Akzo Nobel about a 15% share in the world coatings industry. It also increases Akzo's presence in North America and in architectural markets. If the deal goes through, Henkel will buy ICI's adhesives and electronic materials business.

Sherwin-Williams made two significant acquisitions so far this year. The purchase of MA Bruder was a stock transaction which included about $145 million in sales of architectural coatings to contractors and DIY markets through over 130 company owned stores. The transaction increases Sherwin-Williams' presence in the east and southeastern U.S., and includes the company stores and facilities. Sherwin-Williams' merger agreement with Columbia Paint & Coatings gives SW increased market penetration in the northwest.

The sale of three business segments of Finnaren & Haley is an example of maximizing value by segmenting the business and divesting each part to the correct synergistic buyer. In July, Carboline, subsidiary of RPM, acquired the marine and industrial paint segments of Finnaren & Haley. This acquisition gives Carboline a complete product offering for marine owners and shipyards and increases its product offerings in new construction and maintenance. In August, Benjamin Moore, a leader in premium quality residential paints, acquired select stores of F&H in order to gain presence in the Philadelphia market. Benjamin Moore was also attracted to F&H's brand name and customer service reputation. F&H specialty industrial coatings were sold to a separate synergistic buyer.

The sale of Federated Paint is another example of divesting a business in parts to maximize value. In this case, Delta coatings acquired Federated Paint and Midwest Lacquer, a manufacturer of liquid coatings and lacquers. The transaction will result in synergistic cost savings for Delta and adds to Delta's R&D and production capabilities. The powder business of Federated (Pioneer Powder) was sold to a management group who has the knowledge and experience to grow this business.

Other notable transactions that occurred this year include the acquisition of Specialty Coatings by Beckers, the acquisition of Harco by National Paint Industries, and the acquisition of Zolatone by Huron.

While we were negotiating the Champion, Finnaren & Haley and Federated transactions, our firm noticed that the major goals of the buyers were to effect cost savings through synergies, broaden product lines, and increase market share and presence. It also became clear during negotiations that those firms which had better knowledge of their business, through better organization and advanced computerization, had an easier job of getting through due diligence and validating the purchase price. Our current negotiations indicate that the market is stable with sales and profit margins slowly increasing. Buyers are currently cautiously optimistic about growth through acquisitions, and the financial markets do attribute stability to the paint industry and recognize that we are far removed from the sub-prime markets.

Notable M&A Activity in 2007



Akzo Nobel


• Acquired Chemcraft, Ceilcote
• Offered $16 billion for ICI (pending)

PPG


• Acquired Champion Coatings, Barloworld Coatings
• Made offer for SigmaKalon (pending)

Sherwin-Williams


• Acquired MA Bruder, Columbian Paint & Coatings

About the authors
Stephen Einhorn is president and Jackie 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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