As the end of 2020 approached, PPG Industries made the surprise announcement that it had entered into an agreement to acquire the leading Finnish paintmaker Tikkurila in a deal originally valued at €1.1 billion. With decorative paint companies riding the crest of a demand wave in 2020-1 and with the deal expected to near completion shortly, this article summarizes exactly what PPG will be moving forward with once it has added the Tikkurila activities to its portfolio.

The company is a leading producer and distributor of decorative paint and coatings with operations in 11 countries and more than 80% of its revenue coming from Finland, Sweden, Russia, Poland and the Baltic states. It employs approximately 2,700 people globally.

Tikkurila at the end of 2020

In 2020, decorative paints accounted for 84% of Tikkurila’s turnover. The decorative activities enjoy a presence with three premium brands, which are Tikkurila, Alcro and Beckers. These three brands are most closely associated with its Strategic Business Unit West that covers the company’s market presence in Scandinavia and Eastern Europe (Sweden, Denmark, Norway, Finland, Poland, Estonia, Latvia and Lithuania) and generates 68% of its revenue. The Tikkurila brand is also offered in the company’s Strategic Business Unit East, which operates in Russia, China and Central Asia (Kazakhstan) and represents the remaining 32% of turnover. Teks is another key brand, one that Tikkurila operates in Russia, and dates back to its acquisition of Russia’s Teks Color in the noughties. These 11 named countries represent something of the core markets,

if you will, but this Eastern business area is where there is a great proliferation of exports of Tikkurila’s products, so that its reach takes in as many as 40 national markets.

Among some of Tikkurila’s other brands are:
• Vivacolor, which is a mid-market brand that offers waterborne and solventborne paints for consumers and professionals. This is most closely associated with Tikkurila’s Baltic states presence.
• Jedynka –  a decorative paint brand for the Polish market
• Finncolor – a decorative paint brand for Russia that serves the construction and repair segments

PPG has hitherto had a minimal decorative presence in northern and eastern European countries and so the acquisition of Tikkurila is a highly complementary one, adding sizeable and valuable pieces of PPG’s global presence jigsaw. Such is the attraction of acquiring a strong regional player.

Tikkurila’s participation in industrial coatings is smaller and accounted for 16% of its turnover last year. The main sectors of participation are wood and metal protection. In recent years and reflecting a growing market concern within industry, Tikkurila has been strengthening its hand with fire protection solutions, particularly with its Fontefire brand, which operates in the domain of intumescents for wood and steel. There is a good number of waterborne and solventborne coatings across both the metal and wood protection portfolios, regardless of whether interior or exterior application is required. Also, in 2020 Tikkurila closed a small solventborne coatings plant in Russia as it sharpened its focus on waterborne types.

Tikkurila’s standing in its key markets was boosted significantly last year:
• In Sweden where it is #1 in decorative paints, its sales rose by 11%. Exterior paints did particularly well.
• In Finland  where it is #1 in decorative paints, revenues were up by 7%. Demand for both interior and exterior paints flourished in Finland.
• Poland – where it is #4 in the decorative sector – saw revenues increase by 4%. Interior paint demand was a driver here.
• In Russia, where it is also #1 in decorative paints, Tikkurila’s paint sales grew by 6%, boosted by a trend towards premium products.

The company’s distribution portfolio in the decorative sector is comprehensive. It encompasses various of the major European DIY retailers such as Leroy Merlin, K-Rauta and Bauhaus, Tikkurila’s own network of pro shops, specialist paint shops (e.g. Colorama, Happy Home and RTV) and other distributors.
The lie of the land in early 2021

The publication of Tikkurila’s first-quarter results for this year underscores its strong positioning and performance, building further on its performance in 2020. Revenues for the quarter were up by 9% to just over €145 million inclusive of currency effects (13% exclusive of them). Paint volume sales rose by 10% with strong demand for Tikkurila’s premium brands. Sweden, Poland and Finland all demonstrated strong growth; so too did Russia by double-digit percentages. Across all of its markets, Tikkurila’s sales and price mix developed positively and the demand both for interior and exterior paints was high in all decorative channels and markets. Furthermore, despite pandemic restrictions being effected in countries such as Poland, Denmark and the Baltic states, the continued opening of home improvement stores coupled with more modern ways of conducting business, e.g. click-and-collect operations, helped to satisfy demand.

In industrial coatings, revenue was slightly below the previous year’s level, and performance varied from country to country. Sector-wise, there was growth in applications for wood but not metal.

The second quarter is traditionally the peak season for decorating in Europe, so strong performance in the first quarter is only a build-up to greater demand in the spring. The swing away from DIFM (do-it-for-me) to DIY is expected to continue as people are expected to stay at home, cautiously waiting for some kind of signal the pandemic conditions are nearing an end. However, Tikkurila also acknowledged what is currently being experienced in the wider industry as some limitations in terms of raw material supplies and the inflation of raw material costs. The impact of raw material disruption is expected to make its presence felt more strongly from the second quarter of 2021, which is broadly when PPG was expecting to finalise the deal.

With Tikkurila reporting 2020 full-year sales of €582 million, completion of the deal will add around $700 million to PPG’s revenues on an annualized basis, over and above its purchases of Karl Wörwag, Ennis Flint and Versaflex which are among its other sizeable recent purchases.