News from The Valence Group Conference – M&A helped drive Valspar outperformance

The Valence Group Global Chemicals M&A Conference

Wednesday, 14 September 2016 | Joe Chang | ICIS Chemical News

NEW YORK (ICIS)–US-based coatings company Valspar employed mergers and acquisitions (M&A) to help achieve its strategic goals and outperform the broader market, its CEO said on Wednesday.

Valspar, in the process of being acquired itself by US-based Sherwin-Williams, has grown via M&A into a $4.4bn coatings company with 40% of sales in international markets and leading global market positions in packaging coatings and coil coatings, noted Gary Hendrickson, chairman, president and CEO.

It is also the leader in North American industrial coatings, No 2 in US DIY (do-it-yourself) paints and No 3 in the retail China market, he added.

Hendrickson spoke at The Valence Group Chemicals M&A Conference in New York.

The company has come a long way since 1994, when it was a $700m coatings company with 95% of sales in the US. It was a private label player in decorative paints and used a “fast follower” strategy in the industrial coatings market, he noted.

Valspar has been a very active acquirer. Since 1994, it paid $2.5bn to buy businesses with $2.2bn in annual revenues. The average post-synergy EBITDA (earnings before interest, tax, depreciation and amortisation) for these targets was around 7x, said Hendrickson.

“Our best deal ever came in 2006, where we bought Huarun Paints for around $360m, adding $200m in revenues. This was the No 3 retail brand in China, and really gave us scale there,” said Hendrickson.

Over the last 10 years, Valspar has grown earnings per share at a compounded annual rate of 13%, and achieved a 395% gain in its stock price versus 65% for the broader US market as measured by the S&P 500.

“Our M&A has done well for us,” Hendrickson said.

The overall US coatings sector has also performed well over the period, with a 341% gain in stock prices, he noted.

The coatings business features a number of inherent advantages – being a small part of total customer cost of goods sold (6-10%) and having low capital spending requirements, allowing it to generate plenty of cash, said the CEO.

The global coatings sector itself has completed around $17bn in M&A since 2006 but there is “still a long way to go, as the top five to six have only around 40% market share”, said Hendrickson.

The attractiveness of coatings assets has caught on. “Where years ago there may have been one to two bidders, today you have multiple bidders. Everyone is struggling for growth, so it’s become a lot more competitive in the last five years,” Hendrickson said.