Coatings World - March 2008

ment group acquired the powder coatings business (Pioneer Powder). The Delta transaction resulted in synergistic cost savings, and the powder busi¬ness should benefit from the buying group’s knowledge and experience in the industry. We started working on this transaction a few years prior to completion, and to a large extent it was the abilities of management to improve the firm’s profitability that enabled the owners to receive a value within their goal range.

Huron Capital, through its Quest portfolio company, made three acquisitions during 2007. It acquired UC Holdings, a manufacturer of construction coatings; Zolatone, a manufacturer of automotive aftermarket finishes; and Hydro-Stop, a manufacturer of water-based roofing and waterproofing systems.

Dow Chemical also made three paint related acquisitions in 2007 including Poly-Carb, GNS Technologies and UPPC (Germany). All three are manufacturers of specialty performance coatings for infrastruc-

tures and other heavy applications.

Other notable transactions that occurred during 2007 year included the acquisition of Insl X by Benjamin Moore, California Products by Apollo, Specialty Coatings by Beckers and the acquisition of Harco by National Paint Industries.

In general, 2007 paint transactions showed that buyers are active but cautious and that their primary goals were synergistic cost savings and increased market share. We expect that the paint acquisitions announced during 2008 will be of a lesser magnitude than 2007, with slightly lower prices. Although the paint industry is somewhat separated from the sub-prime mortgage market, any cooling of the national housing sector will affect the paint industry. To date our clients have been able to maintain their 2007 sales levels, but the fallout has not been completed. It is unknown whether the proposed $150 billion that the U.S. government plans to hand out to citizens will have a greater impact on inflation or economic growth.

For 2008 we predict that the current low interest rates will tend to rise and inflation will increase. Secondly, the impetus for sale will increase toward the end of the year as the low capital gain tax levels of today ease toward the return to full tax rates in 2011. Lastly, the trend toward industrial paint production in India and China will continue but reach its long-term equilibrium by the end of 2008.

We have one final prediction. We have stated in the past that the biggest change in architectural coatings will be that the mass-merchants will adopt automated equipment to facilitate their paint sales and we believe that 2008 will be the year that significant change occurs. CW

Stephen Einhorn is president and Jaclyn Christiansen is vice president of Einhorn Associates, Inc., Milwaukee, WI, where they have specialized in paint and coating’s mergers and acquisitions for many years. They can be contacted at einhorn@einhornassociates.com.