Terry Knowles, European Correspondent12.08.21
In my first column for Coatings World earlier this year, I wrote about strategy within the paint industry and the significance of acquiring regional paintmakers. In 2021 we have already witnessed the acquisition of Tikkurila by PPG Industries, bringing more U.S. input into the European paint market. In the last month, Nippon Paint has announced plans to acquire two key paintmakers in Europe. The largest and most significant one is Cromology and the second one is JUB.
History
The Cromology deal is especially significant in terms of reaching sizeable markets. Historically the company had been rooted in the French building products company Lafarge, which assembled its own paint-making arm, Lafarge Peintures as part of its Lafarge Speciality Materials division. Lafarge had started to embark upon an acquisitions strategy with Tollens Peintures in 1995, and 20 years ago Lafarge Speciality Materials became Materis and the paint operations were known as Materis Paints. Ongoing acquisitions on either side of the millennium year furnished the company with a portfolio of operations in Portugal, Spain, Switzerland, Italy and France, and across the Mediterranean, in Morocco. In 2016, Wendel became the major shareholder in Materis Paints, and in 2018 renamed the entire group as Cromology, also bringing new management to the operations. Wendel’s sale price to Nippon Paint is €1.152 billion (cash), and that is more than 14 times the estimated EBITDA figure for 2021. The deal looks like it will be closed in the first half of 2022.
Strategy
The deal appears to have been largely orchestrated and managed through the DuluxGroup operations. Nippon Paint envisages that its path ahead will benefit from the DuluxGroup’s experience and management of brand portfolios and strongly controlled distribution activities across both DIY and trade channels.
In addressing investors on the deal, Nippon Paint made it clear that its focus was on acquiring regional decorative paint businesses. Noteworthy is that further to the multinational portfolio of decorative paint operations, Cromology also sells ETICS, decorators’ auxiliaries, wall and floor coverings and waterproofing systems.
In recent years, Nippon Paint has been slow to formalize Europe as a region in the publication of its annual results (more on that later) but with the Cromology takeover it will now have a greater presence in Western Europe that adds substantially to its decorative and automotive coatings operations in Turkey. The Moroccan end to the business also gives small presence in Africa and amounts to the only condition on the successful conclusion of the deal.
Perspective
In its integrated report for 2021, Nippon Paint surveys the world’s paint markets. With the exception of France and Italy, European paint markets (including Turkey) are seen as growing in the range of 2-5% in the period up until 2024, while the French and Italian paint markets can expect average growth of not more than 2%. Africa fares much better, with growth rates exceeding 5% continent-wide. Nippon Paint valued the global paint market at $165 billion in 2019 and expects it to rise to $202 billion by 2024, equivalent to average growth of 4.2% p.a.
Access
Despite the immediate lower growth potential of France and Italy, the deal paves the way to a much greater position in both countries. Some 67% of Cromology’s turnover originates in France, where the decorative sector is moderately consolidated, with a further 12% coming from Italy, where the decorative sector remains very fragmented. These differing degrees of fragmentation are echoed by the fact that the deal hands Nippon Paint market leadership in Italy but second place in France. Incidentally, the French paint market in total is valued at €1.6 billion and Cromology claims 14% market share in the country. The largest part of Cromology’s sales is in decorative trade paint. How each of the eight different economies will contribute to Nippon Paint through the deal is illustrated in the chart.
In the other countries, Cromology holds the #2 position in Portugal and the #3 positions in both Spain and Morocco.
The deal brings nine manufacturing sites in the EMEA region to Nippon Paint’s global production network. Four of them are in France, two are in Italy and there is one each in Spain, Portugal and Morocco. The company also takes ownership of a distribution network of 386 company-owned stores.
In France alone there is a strong distribution network that operates under two main brands. The Tollens brand (168 stores) focuses on interior and exterior coatings and color, while the Zolpan brand (144 stores) is directed towards technical coatings and ETICS. The majority of sales to the trade segment for Cromology in France is secured through its own distribution activities, which benefits from good brand control and well-chosen locations. The performance of the company-owned stores in recent years has been core strength of the business, as the home renovation market in France has been a strong performer, although since the management change in 2018 it is noted that the company has grown well in all of its different geographies.
Evolution
In all cases as seen in the second chart, most if not all of the sales in the ‘other’ region were attributed to Europe, and by 2015 Nippon Paint had already seen its European sales pitchforked through the acquisition of Germany’s Bollig & Kemper, a producer of automotive coatings. This was the start of the company changing the distribution of its turnover. The acquisition of the DuluxGroup in Australia and New Zealand added Oceania as a distinct region to the sales, and that has promptly grown to account for nearly a fifth (19%) of Nippon Paint’s turnover in 2020. At the time this would also have increased Nippon Paint’s presence in Europe by picking up the Scotland-based paintmaker Craig & Rose, which had previously been bought by the DuluxGroup.
Throughout all of this M&A taking place, Nippon Paint’s dependency upon Japan has been reduced from 33% of sales in 2015 to 20% in 2020. With it, the company’s presence in greater Asia (China, India and ASEAN markets) has been reduced from nearly two-thirds in 2015 to 45% in 2020.
The Cromology takeover is expected to add another €686 million (¥90 billion) to Nippon Paint’s sales based on the company’s 2020 turnover. All of the sales are secured in the EMEA region but only 62% of the turnover was derived from coatings in 2020 (approximately €440 million out of €710 million). The increment of EBITDA from the deal is expected to amount to €80 million.
Nippon Paint is ranked #4 in the global paint market with about 4.5% share and although the deal will improve upon this share, its ranking will go unaltered. According to the company’s statistics, Sherwin-Williams holds 18% of the global market, PPG 15% and AkzoNobel is third with 11%.
History
The Cromology deal is especially significant in terms of reaching sizeable markets. Historically the company had been rooted in the French building products company Lafarge, which assembled its own paint-making arm, Lafarge Peintures as part of its Lafarge Speciality Materials division. Lafarge had started to embark upon an acquisitions strategy with Tollens Peintures in 1995, and 20 years ago Lafarge Speciality Materials became Materis and the paint operations were known as Materis Paints. Ongoing acquisitions on either side of the millennium year furnished the company with a portfolio of operations in Portugal, Spain, Switzerland, Italy and France, and across the Mediterranean, in Morocco. In 2016, Wendel became the major shareholder in Materis Paints, and in 2018 renamed the entire group as Cromology, also bringing new management to the operations. Wendel’s sale price to Nippon Paint is €1.152 billion (cash), and that is more than 14 times the estimated EBITDA figure for 2021. The deal looks like it will be closed in the first half of 2022.
Strategy
The deal appears to have been largely orchestrated and managed through the DuluxGroup operations. Nippon Paint envisages that its path ahead will benefit from the DuluxGroup’s experience and management of brand portfolios and strongly controlled distribution activities across both DIY and trade channels.
In addressing investors on the deal, Nippon Paint made it clear that its focus was on acquiring regional decorative paint businesses. Noteworthy is that further to the multinational portfolio of decorative paint operations, Cromology also sells ETICS, decorators’ auxiliaries, wall and floor coverings and waterproofing systems.
In recent years, Nippon Paint has been slow to formalize Europe as a region in the publication of its annual results (more on that later) but with the Cromology takeover it will now have a greater presence in Western Europe that adds substantially to its decorative and automotive coatings operations in Turkey. The Moroccan end to the business also gives small presence in Africa and amounts to the only condition on the successful conclusion of the deal.
Perspective
In its integrated report for 2021, Nippon Paint surveys the world’s paint markets. With the exception of France and Italy, European paint markets (including Turkey) are seen as growing in the range of 2-5% in the period up until 2024, while the French and Italian paint markets can expect average growth of not more than 2%. Africa fares much better, with growth rates exceeding 5% continent-wide. Nippon Paint valued the global paint market at $165 billion in 2019 and expects it to rise to $202 billion by 2024, equivalent to average growth of 4.2% p.a.
Access
Despite the immediate lower growth potential of France and Italy, the deal paves the way to a much greater position in both countries. Some 67% of Cromology’s turnover originates in France, where the decorative sector is moderately consolidated, with a further 12% coming from Italy, where the decorative sector remains very fragmented. These differing degrees of fragmentation are echoed by the fact that the deal hands Nippon Paint market leadership in Italy but second place in France. Incidentally, the French paint market in total is valued at €1.6 billion and Cromology claims 14% market share in the country. The largest part of Cromology’s sales is in decorative trade paint. How each of the eight different economies will contribute to Nippon Paint through the deal is illustrated in the chart.
In the other countries, Cromology holds the #2 position in Portugal and the #3 positions in both Spain and Morocco.
The deal brings nine manufacturing sites in the EMEA region to Nippon Paint’s global production network. Four of them are in France, two are in Italy and there is one each in Spain, Portugal and Morocco. The company also takes ownership of a distribution network of 386 company-owned stores.
In France alone there is a strong distribution network that operates under two main brands. The Tollens brand (168 stores) focuses on interior and exterior coatings and color, while the Zolpan brand (144 stores) is directed towards technical coatings and ETICS. The majority of sales to the trade segment for Cromology in France is secured through its own distribution activities, which benefits from good brand control and well-chosen locations. The performance of the company-owned stores in recent years has been core strength of the business, as the home renovation market in France has been a strong performer, although since the management change in 2018 it is noted that the company has grown well in all of its different geographies.
Evolution
In all cases as seen in the second chart, most if not all of the sales in the ‘other’ region were attributed to Europe, and by 2015 Nippon Paint had already seen its European sales pitchforked through the acquisition of Germany’s Bollig & Kemper, a producer of automotive coatings. This was the start of the company changing the distribution of its turnover. The acquisition of the DuluxGroup in Australia and New Zealand added Oceania as a distinct region to the sales, and that has promptly grown to account for nearly a fifth (19%) of Nippon Paint’s turnover in 2020. At the time this would also have increased Nippon Paint’s presence in Europe by picking up the Scotland-based paintmaker Craig & Rose, which had previously been bought by the DuluxGroup.
Throughout all of this M&A taking place, Nippon Paint’s dependency upon Japan has been reduced from 33% of sales in 2015 to 20% in 2020. With it, the company’s presence in greater Asia (China, India and ASEAN markets) has been reduced from nearly two-thirds in 2015 to 45% in 2020.
The Cromology takeover is expected to add another €686 million (¥90 billion) to Nippon Paint’s sales based on the company’s 2020 turnover. All of the sales are secured in the EMEA region but only 62% of the turnover was derived from coatings in 2020 (approximately €440 million out of €710 million). The increment of EBITDA from the deal is expected to amount to €80 million.
Nippon Paint is ranked #4 in the global paint market with about 4.5% share and although the deal will improve upon this share, its ranking will go unaltered. According to the company’s statistics, Sherwin-Williams holds 18% of the global market, PPG 15% and AkzoNobel is third with 11%.