2007 M&A Review

By Stephen Einhorn & Jaclyn Christiansen | March 7, 2008

Last year was a good year for merger/acquisition activity in the paint industry with approximately two-dozen paint transactions in the U.S. alone. The size of these transactions ranged from million dollar small management buyouts to multi-billion dollar investments by industry leaders. Heading the list of acquirers was PPG, Sherwin-Williams and Akzo Nobel.

PPG's 2007 acquisition efforts included offers to purchase SigmaKalon and Barloworld, as well as the acquisition of Champion Coatings. The Champion purchase fit in with PPG's goal to increase market share in transportation coatings where PPG has great strength. Having worked on this deal our observation is that PPG, like most of the major firms, has developed substantial expertise in exercising its transition skills as proven by their ability to maintain and expand this business shortly after its acquisition.

In July, PPG offered to purchase SigmaKalon Group from Bain Capital for approximately $3 billion.� Sigma�Kalon, an international producer of architectural, industrial and marine coatings, is a leading coatings supplier in Europe, and fit in with PPG's geographic and market goals. It gives PPG a significant presence in the European architectural coatings market and strengthens PPG's presence in pro�tective and marine coatings. In July, PPG agreed to acquire Barloworld Coatings Australia, a leading Australian architectural paint producer. This purchase includes the Bristol and White Knight brand names, complements PPG's 2006 acquisition of Protec and makes PPG the largest coatings manufacturer in Australia.

Sherwin-Williams made two significant acquisitions during 2007. The purchase of MA Bruder included approximately $150 million in sales of architectural coatings through company stores to contractors and DIY markets. Sherwin-Williams' merger agreement with Columbia Paint & Coatings gives the company additional market penetration in the northwest U.S.

Last year Akzo Nobel agreed to acquire ICI for $16.7 billion, and this transaction became official in January 2008. Pictured above from left to right is ICI CEO John McAdam and Akzo Nobel CEO Hans Wijers.
Akzo Nobel acquired Ceilcote and Chemcraft in 2007. The Chemcraft acquisition strengthens Akzo's position in the North American wood coatings market and complements Akzo's industrial finishes business. Akzo Nobel strengthened its position in the protective coatings market with the acquisition of Ceilcote, which services the power generation, mining, wastewater and chemical processing industries. Last year Akzo Nobel agreed to acquire ICI for $16.7 billion, and this transaction became official in January 2008.

During 2007 the Finnaren & Haley business was sold in three segments. RPM's Carboline subsidiary acquired the marine and industrial paint segments while� Benjamin Moore acquired select stores and the specialty industrial coatings were sold to a separate buyer.

Federated Paint was also sold in segments. Delta Coatings acquired Federated Paint and Midwest Lacquer (a manufacturer of liquid coatings and lacquers) and a management group acquired the powder coatings business (Pioneer Powder).� The Delta transaction resulted in synergistic cost savings, and the powder busi�ness should benefit from the buying group's knowledge and experience in the industry. We started working on this transaction a few years prior to completion, and to a large extent it was the abilities of management to improve the firm's profitability that enabled the owners to receive a value within their goal range.

Huron Capital, through its Quest portfolio company, made three acquisitions during 2007. It acquired UC Holdings, a manufacturer of construction coatings; Zolatone, a manufacturer of automotive aftermarket finishes; and Hydro-Stop, a manufacturer of water-based roofing and waterproofing systems.

Dow Chemical also made three paint related acquisitions in 2007 including Poly-Carb, GNS Tech�nologies and UPPC (Germany). All three are manufacturers of specialty performance coatings for infrastructures and other heavy applications.

Other notable transactions that occurred during 2007 year included the acquisition of Insl X by Benjamin Moore, California Products by Apollo, Specialty Coatings by Beckers and the acquisition of Harco by National Paint Industries.

In general, 2007 paint transactions showed that buyers are active but cautious and that their primary goals were synergistic cost savings and increased market share. We expect that the paint acquisitions announced during 2008 will be of a lesser magnitude than 2007, with slightly lower prices. Although the paint industry is somewhat separated from the sub-prime mortgage market, any cooling of the national housing sector will affect the paint industry.� To date our clients have been able to maintain their 2007 sales levels, but the fallout has not been completed. It is unknown whether the proposed $150 billion that the U.S. government plans to hand out to citizens will have a greater impact on inflation or economic growth.

For 2008 we predict that the current low interest rates will tend to rise and inflation will increase. Secondly, the impetus for sale will increase toward the end of the year as the low capital gain tax levels of today ease toward the return to full tax rates in 2011. Lastly, the trend toward industrial paint production in India and China will continue but reach its long-term equilibrium by the end of 2008.

We have one final prediction. We have stated in the past that the biggest change in architectural coatings will be that the mass-merchants will adopt automated equipment to facilitate their paint sales and we believe that 2008 will be the year that significant change occurs.

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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