Sherwin-Williams’ largest deal ever, the $2.34 billion acquisition of Mexico’s Comex, will strategically position the buyer in a set of robust national markets throughout Latin America, at the same time as it strengthens its western U.S. and Canadian presence. The combined company will have $10 billion in sales.
With very strong brand recognition in Latin America, S-W now has acquired a company that registered two-thirds of its sales in the region, including Mexico. Comex, which had total sales of $1.6 billion in 2010, had 3,300 points of sale when the deal was announced. S-W has 3,400 points of sale in the U.S., ac- cording to one analyst.
Mexico’s residential paint market is expect- ed to expand by double digits over the coming year. A recent survey of Mexico’s leading con- sumer companies indicated a shared expecta- tion for approximately 20 percent growth over the coming year.
Comex has increased its investments in the U.S. over the past several years through the ac- quisition of Professional Paint Inc., of Lonetree, Colorado for $400 million. PPI’s network of regional paint formulators sell under differ- ent brands in the U.S. including Color Wheel in Florida, Frazee in California, Kwal Paint in Colorado, Parker Paint in the U.S. Pacific Northwest and General Paint in Canada. As a result, Comex has expanded rapidly in China as well.
Following the announcement of the Comex deal, Moody’s Ratings Service announced a downgrade review of the company’s A3 Senior Unsecured Rating, since some $2 billion of the purchase price would go to cover Comex debt. As recently as August, Comex took out a loan of more than $400 million, and in 2009, the company executed a $475 million restructur- ing. To raise the acquisition funds, S-W indi- cated plans to issue 5, 10 and 30 year notes.
In January, Moody’s Ratings Service noted that, “SHW’s ratings are constrained by the company’s relatively narrow focus in the coatings sector. The company is also heavily exposed to the housing market, as trends in housing have an important impact on demand. While we believe the company’s manufacturing efficiency is world-class, the company has sig- nificant exposure to rising input costs, notably most recently titanium dioxide.”
While only some 15 percent of Comex sales are industrial, the company’s close linkage with Mexico’s national oil company Pemex will pro- vide S-W with a competitive edge in this high- value segment, as well. The combined entity will have incumbent access to the oil and gas market, as well as to a growing industrial main- tenance segment in general. In May, Comex un- veiled a new powdered coating line, Khral.
Within Comex, one industrial unit offers: industrial coatings; architectural paints; tex- turizing; accessories; enamels; waterproofing; wood and other products. “We manage specifi- cation coating products for PEMEX, CFE (the national electricity monopoly), Amercoat, CIC (Comex Industrial Coatings), industrial floor coatings, flame retardant coatings, high temper- ature coatings, primers, anticorrosive polyure- thane and epoxy coatings among others,” the unit advertises.
Mexico’s national paint trade association, ANAFAYT, blessed the Comex deal. President Javier Guillermo Maldonado Moctezuma noted that Mexico only consumes 5.5 liters of paint per capita annually, while the U.S. con- sumes close to 16 liters.