Painting a new landscape
Sherwin-Williams’ acquisition of Valspar Corp. in an $11.3 billion deal has the potential to redefine the paint and coatings industry on a global scale, according to some hardware executives, even as many industry followers prefer to take a wait-and-see approach.
Once completed — and it is not expected to be finalized until the first quarter of 2017 — Sherwin-Williams would become the industry’s largest paint company, overtaking PPG Industries and Akzo Nobel N.V. Prior to this deal, Sherwin-Williams had ranked No. 3 and Valspar No. 4.
The move comes as Valspar has taken a larger role in the paint offerings of Ace Hardware, and more recently, Memphis, Tennessee-based distributor Orgill. In March of this year, Orgill and Valspar teamed up to create a colorful store-within-a-store offering called the Paint Works.
Ace’s relationship with Valspar runs deeper. Its Paint Studio concept, unveiled in late 2013 and promising a “style-inspired and personal paint shopping experience,” has rolled out at more than 3,500 stores. Ace and Valspar partnered to bring the new format into Ace stores, a move described as a $75 million investment.
Representatives for both Ace Hardware and Orgill declined to comment on the possible impact of the SHW-VAL deal.
Other distributors are watching with interest, as well. At Do it Best Corp., communications director Randy Rusk said it’s too early to comment, beyond saying, “For now, it’s business as usual.”
Do it Best carries both Valspar and Sherwin-Williams products in its warehouses.
However, not all executives adopted the business-as-usual line. Steve Geismar, president of PACOA, a Port Washington, New York-based distributor, said a major consolidating move such as this one “is not healthy for the industry, not healthy for the distributor, not healthy for the retail customer. None of this is good for any of the independent retailers or distributors.”
Geismar noted that if the deal goes through, Sherwin-Williams would supply Ace Hardware, its own stores and Lowe’s. “How many retailers will this affect?” he asked. “A strong Sherwin-Williams makes it harder for the independents.”
At least one dealer, Robert Stevenson, co-owner of Stevenson True Value in Ransomville, New York, said he didn’t think the deal would impact his individual business. “I don’t think so. There isn’t a Sherwin-Williams [store] close to us, and our True Value line, EasyCare, is better than theirs; it’s a big seller here and we are known for our paints.”
Sherwin-Williams operates 3,812 paint stores in the United States, according to its 2015 annual report.
One other True Value dealer, who did not want to be identified, said EasyCare is a big seller in his market as well, and the impending merger won’t impact his business for a while.
The details
John Morikis, CEO of Sherwin-Williams, said the combination with Valspar would create a premier global paints and coatings company with a comprehensive product portfolio and broad global reach. “This is a highly complementary transaction that accelerates our growth strategies and enables us to deliver a broad range of products to more customers,” he said during a conference call shortly after the deal was announced.
He went on to say, “I want to make something explicitly clear. We do not buy companies to dismantle them. Valspar has a really talented workforce, and they are a huge component of making this transaction a success.”
Dmitry Silversteyn, a Cleveland-based analyst at Longbow Research, said the deal “makes a ton of strategic sense” because its boosts Sherwin-Williams’ sales to U.S. DIY paint customers, as well as international markets and industrial coatings markets, three areas where the company is under-exposed, Silversteyn said.
Valspar generates almost half of its revenue abroad and thus will help Sherwin-Williams expand in the Asia Pacific region and Europe. Despite its global perspective, the merger also gives Sherwin-Williams additional exposure to the retail market. While its Dutch Boy and Minwax brands can be found in many retail outlets, the paint maker’s primary target market has been the paint professional who shops at company-owned stores. About 60% of Sherwin-Williams’ revenue comes from its own stores for paint sales.
Valspar’s coatings margins of 20.1% are nearly identical to the 20% generated by Sherwin-Williams’ Paint Stores Group. Valspar’s paint margins are 13.2%, while Sherwin-Williams’ Global Finishes Group has margins of 10.5%. The companies expect to achieve $280 million of estimated annual synergies in the areas of sourcing, process and efficiency savings within two years. Acknowledging the two companies’ synergies, Valspar chairman and CEO Gary Hendrickson called the combination “a perfect fit” during the conference call.
The merger would be the biggest acquisition in Sherwin-Williams’ 150-year history and would create a company with combined revenue of about $15.6 billion, with roughly 58,000 employees.
In 2014, Sherwin-Williams failed in its bid to buy Mexican paint giant Comex because Mexico’s regulators feared it would have too much control over the market. That allowed PPG Industries to move in and acquire the coatings specialist, paying roughly the same amount Sherwin-Williams had offered.
[CORRECTION: A previous version of this article incorrectly described the deal as an $11.3 million deal. The correct figure is $11.3 billion. We regret the error.]