Tough Talk: Merger Mania

By: Kevin Biller

After a bit of a lull in M&A land following the Great Recession, the coatings industry has seen a blistering pace of company ownership transactions. It seems like it all started with Sherwin Williams (S-W) unsuccessful bid in 2012-2013 to purchase COMEX, the leading coatings manufacturer in Mexico. The commerce regulators did not look favorably on the deal which compelled S-W to withdraw their bid. Soon thereafter PPG swooped in and grabbed COMEX for a cool $2.3 billion. Since this buy, at least $17 billion of ownership wheeling and dealing has occurred in the coatings industry. Because of this the business landscape of our industry has changed significantly. Let’s take a look at some of the deals.

Sherwin Williams had coveted COMEX as it would have made them the largest consumer based paint manufacturer by far in North America. The industrial coatings businesses including powder coatings would have gone along for the ride. PPG was able to complete the acquisition because they have a smaller footprint in the consumer paint arena and the deal sailed through regulatory approval. COMEX added about $1 billion in sales to PPG’s top line.

The DuPont coatings saga took a unique turn during this period. In 2012, DuPont unloaded their industry coatings business to Carlyle, a private equity firm, for 4.9 billion. Apparently Carlyle’s Merger Mania intention was to beef up the value of the newly named concern, Axalta Coatings Systems, then either find a suitor or initiate an initial public offering (IPO). About 19 months hence, this coatings manufacturer was spun off through an IPO. Interestingly, the IPO generated about $1.1 billion in the initial share offering, far below Carlyle’s purchase price, however Carlyle had only paid around $1.3 billion in cash in the original deal and still retains a significant shareholder position. Axalta is now an independent company that trades on the New York Stock Exchange.

In June of 2014, PPG made another strategic acquisition. This time they bought IVC Industrial Coatings which is headquartered in Brazil, Indiana. IVC has had a stronghold in supply to the metal office furniture market which PPG had tried to crack for over a decade. The financial details of this transaction were not made public.

Fast forward to 2016 and merger mania is in full swing. In February, AkzoNobel announced its intentions to purchase what’s left of BASF’s industrial coatings division. The $541 million deal includes technology, patents and brand trademarks, as well as manufacturing sites in Deeside, UK, and Vanderbijlpark, South Africa. BASF’s automotive and consumer house paint divisions were not included in this deal.

Just when you thought companies were too big to be bought, Sherwin Williams announces the blockbuster move to buy the entire Valspar paint and coatings company for $9.3 billion. Not only does Valspar bring the coveted Lowe’s house paint business, it also broadens S-W’s international footprint especially in Europe and Asia. This acquisition elevates Sherwin Williams to a behemoth financial status of nearly $15.6 billion in annual sales.

In the background, the raw material companies have not stood still. In December 2015, Dow Chemical and DuPont (not the coatings division) expressed their intention to merge and eventually split the conglomeration into three different companies. Combined, this merger represents around $130 billion in annual sales. The three new divisions would be segmented into agricultural (seeds and pesticides), materials (plastics and chemicals), and specialty products (electronics, biosciences and health care). This deal will undoubtedly fall under the Commerce Department’s magnifying glass but is expected to pass their review. Interestingly, BASF has considered a johnny-come-lately ploy to wrest DuPont from the intended deal. Recent reports indicate that BASF may be withdrawing their consideration for a counterbid.

In a smaller but still significant transaction, Synthomer announced the acquisition of Hexion. This UK-based manufacturer of synthetic latex resins purchased Hexion’s coatings and adhesives resins business for $226 million. This acquisition expands Synthomer’s product lines in the polyester powder resins arena as well as performance adhesives.

So how does this impact the powder coating industry? All the aforementioned companies are players in either powder coating manufacture or the supply of raw materials to powder makers. As we all know, these deals are always primarily driven by shareholder interests to maximize return on their investment. If you’re a shareholder then bully for you. As for operations, mergers usually provide opportunities for greater efficiencies through manufacturing consolidation and stronger supply chain buying power. From a consumer and customer vantage, the impact depends on a number of factors. Mergers create uncertainty if not managed properly and sometimes cause short-term lapses in quality and delivery. In some cases pricing becomes less competitive as fewer players compete for the same business.

In the end acquisitions and consolidation hit people on a personal level. Scores, if not hundreds, of positions are made redundant, thus hurtling individuals back into the job market. In addition, communities can suffer with plant closings, especially in smaller cities and towns. There are winners (mainly shareholders) and losers (laid-off employees and sometimes unhappy customers) in these deals. One of the biggest questions in my mind is whether this consolidation thwarts or inspires new technology. I’m afraid too often it stymies innovation, at least for the short term. I guess time will tell. In the meantime, I just can’t see another big merger/acquisition announcement for a long time. The industry is running out of companies to acquire.

Kevin Biller is technical editor of Powder Coated Tough and the president of The Powder Coating Research Group. He can be reached at kevinbiller@yahoo.com.