PPG to acquire Mexico’s Comex for $2.3 billion
3:11 PM MDT | July 7, 2014 | —Robert Westervelt
PPG Industries has reached a definitive agreement to acquire Consorcio Comex (Mexico City), a leading Mexican producer of architectural and industrial coatings, for $2.3 billion. The deal comes two months after Sherwin-Williams (SW) cancelled plans to acquire the Mexican operations of Comex for $2.3 billion after Mexico’s federal competition commission blocked the deal.
The privately held Comex has approximately 3,900 employees, eight manufacturing facilities, and six distribution centers and had sales of approximately $1 billion in 2013. PPG says Comex’s sales mix is roughly 65% architectural coatings and 35% industrial coatings.
The deal underscores PPG’s continuing shift toward coatings, which now account for 93% of pro forma revenues, adjusted to include Comex sales, up from 56% in 2004. PPG completed the sale of its industrial chemical business to Georgia Gulf last year and recently completed the sale of its Transistions optical joint venture to Essilor, since its focus has narrowed on coatings. PPG says Comex will more than double its share of sales in Latin American revenues, from 5% to 11%.
Comex sells coatings and related products in Mexico and Central America through approximately 3,600 stores that are independently owned and operated by more than 700 concessionaires. The deal is subject to regulatory approvals and other customary reviews. PPG expects the regulatory review to take four to six months. PPG chairman and CEO Charles Bunch says the company does not foresee any regulatory concerns or anticompetitive impact given PPG’s “negligible” presence in Mexico’s architectural coatings market. PPG says the deal is its largest since the 2008 acquisition of SigmaKalon for €2.2 billion ($3.2 billion).
SW’s attempted acquisition of Comex was announced in November 2012 and abandoned in April 2014 after failing to secure antitrust approvals in Mexico. SW did successfully acquire Comex’s US and Canadian operations for $165 million in September 2013.
“Comex is a high-quality, well-managed business with a long heritage of excellent customer service and leading, well-recognized regional brands,” Bunch says. “The acquisition is very complementary to PPG, as it adds a leading architectural coatings business in Mexico and Central America.”
PPG plans to use cash and short-term investments on hand for the purchase, but Bunch indicates that the company may fund a portion by adding debt. The deal will be immediately accretive to earnings excluding nonrecurring acquisitions costs, the company says. PPG also expects acquisition-related savings of 3–4% of acquired sales over two years.
PPG reports $3 billion of cash and short-term investments on hand as of 31 March. The company completed the sale of its 51% ownership interest in Transitions Optical in March and received aftertax proceeds of $1.5 billion. PPG’s board in April approved a $2.0-billion share repurchase authorization and increased the quarterly dividend payable 12 June by 10%.
“We estimate Comex has about 50% share of Mexico’s architectural coatings market with essentially 100% brand recognition among coatings customers in the region,” says Laurence Alexander, analyst with Jefferies (New York). “While not disclosed, PPG commented that margins are ‘best-in-class’ for a coatings business or likely at or above PPG’s average, with mid-to-high single-digit sales and earnings growth.” Comex is also a strong, strategic fit, since PPG has negligble architectural sales in Mexico, he adds. “Given that coatings brands are regional, not global, acquisitions matter more than advertising when entering a new geography,” he adds.
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