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PPG sees coatings M&A opportunities in Asia, Latin America

Zoom  Zoom Issue Date:2013-09-27   Source:PUWORLD   Browse:563

US-based coatings giant PPG Industries is seeking to build on its leading coatings franchise with additional mergers and acquisitions (M&A) in emerging markets in Asia and Latin America, its chief executive said on Thursday.

“Those two areas have higher potential for growth, and that’s where we’re looking,” said Charles Bunch, chairman and CEO of PPG Industries.

PPG has grown its Asia coatings business from $527m (€390m) in 2004 and $1.87bn in 2008 to $2.62bn in 2012, accounting for about 20% of total coatings sales on a pro forma basis. Chinaaccounts for around half of the Asia business.

The company has continued to make acquisitions in its core coatings business while divesting non-core assets.

PPG completed its purchase of AkzoNobel’s North American architectural coatings business in April 2013 for $1.05bn.

“In this deal, we saw a good opportunity for us to acquire a business here in North America that had a similar profile to our architectural coatings business,” said Bunch.

“With this we build size and scale, and position ourselves for a continued upturn in North American construction markets. We are deep into the integration and encouraged by the synergies,” he added.

In May 2013, PPG also bought US-based aerospace coatings company Deft for an undisclosed sum.

Historically a diversified industrial company with roots in glass, coatings and chemicals, PPG started focusing on its coatings business in the late 1990s.

“We made a strategic decision to focus on our best business and have grown organically and through acquisitions. In coatings, we saw the opportunity to create a lot of value for our customers, developing solutions from our strengths in technology, innovation and service,” said Bunch.

The coatings business offers consistent, less cyclical growth and cash flows. It is also very “asset-light” – or less capital intensive, noted Bunch.

PPG’s coatings business has generated a compounded annual growth rate of 10% in operating earnings from 2007-2012, including the impact of the recession in 2008-2009. Through the first half of 2013, earnings are up more than 20% year on year.

“When opportunities presented themselves, we reduced our exposure to glass and chemicals. It has been a more evolutionary transformation,” he added.

In a landmark deal completed in January 2013, PPG separated its chlor-alkali business and merged it with US-based polyvinyl chloride (PVC) producer Georgia Gulf to create a fully integrated, publicly traded PVC company called Axiall.

PPG received $900m in cash and was able to retire 7% of its outstanding common stock through an exchange offer.

In July 2013, PPG took another major step in its transformation, agreeing to sell its 51% stake in self-tinting lens company Transitions Optical to joint venture partner France-based Essilor International for an enterprise value of $3.4bn.

Upon closing of the deal, expected in the first half of 2014, PPG will receive $1.73bn in cash on a pre-tax basis, with after-tax proceeds estimated at around $1.5bn.

With the planned divestiture, Bunch calls PPG’s transformation “largely complete” with 90%, or $13bn, of total 2012 pro forma sales of $14.2bn in its core coatings business.

The company still has a glass business comprising 7% of sales, and specialty materials the remaining 3%.

“We regard the glass business as less core, and we could look at [divesting] that over time,” Bunch said.

With additional opportunities for organic growth and acquisitions in coatings, Bunch plans to “move that needle to more than 90%”.

In addition to coatings, the company would be open to making acquisitions in adjacent businesses such as in adhesives, sealants and pre-treatments, where it already operates.

However, “back-integration into TiO2 [titanium dioxide] is not on our radar screen,” said Bunch.

In the $110bn global coatings sector, PPG will continue to be a consolidator, “more outside ofNorth America,” noted Bunch.

“We’ve been one of the leaders in global coatings consolidation and you’ll continue to see moves from us,” he said.a

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