Sherwin-Williams to Acquire Valspar in US$9.3 Billion Deal

Blockbuster acquisitions continue to grab headlines within the Home and Technology sector. In January, Haier Group announced its acquisition of General Electric Co’s consumer appliances business, in a proposed US$5.4 billion deal. This past weekend, The Sherwin-Williams Co made a major splash when it announced an agreement to purchase Valspar Corp for US$9.3 billion. The deal, which would be expected to close in the 2017 first quarter, would represent another major acquisition following the 2013 takeover of the North American architectural coatings segments of Akzo Nobel by PPG.

A new global leader

According to Euromonitor International’s forthcoming home and garden research figures, Sherwin-Williams was the second largest manufacturer of home paint in 2015 for the US, with a 25% value share of sales. Valspar checked in at a 10% value share of home paint sales, the fourth largest in the US. Together, the merged company could well eclipse current leader PPG Industries Inc’s 27% share. The combined company would also become the world’s largest home paint manufacturer, with over US$4.1 billion in 2014 retail consumer sales, according to Euromonitor International’s most recently published figures.

Sherwin-Williams and Valspar distribution differences

Sherwin-Williams and Valspar approach the consumer home paint market from two distinctly different backgrounds. Sherwin-Williams, which has long excelled as a brand trusted by professional painting contractors, maintains an extensive chain of company-owned paint stores throughout North America and the Caribbean. The company reached 4,000 locations in 2014, and had 4,086 stores as of 31 December 2015. Recently, it entered into a partnership with home and garden specialist retailer Lowe’s to market a new paint branded HGTV HOME by Sherwin-Williams that capitalises on the popularity of the HGTV cable network in the US, which features a variety of programmes centred around house-flipping and other home-related tasks.

Valspar’s distribution strategy is more consumer-focused and has centred around home and garden specialist retailers outside of the company-owned paint store. Valspar’s paints are featured at Lowe’s as a major brand and, more recently, in 2013, the company entered into a partnership with Ace Hardware Corp – which maintained 4,312 locations in the US in 2015. Through the partnership, Valspar paint is marketed at Ace Hardware locations, while Valspar serves as the manufacturer for Ace Hardware branded paints.

Benefits of the acquisition

Upon closure, the proposed acquisition would greatly strengthen Sherwin-Williams’ position in the home paint market both in the US and internationally. In the US, the company would benefit from strength in the company-owned paint store channel through its Sherwin-Williams stores, the independent home and garden specialist retailers channel through relationships between Valspar and Ace Hardware, and in the big box home improvement and gardening stores channel thanks to HGTV HOME through its Sherwin-Williams and Valspar agreements with Lowe’s.

Internationally, the deal would strengthen Sherwin-Williams by giving the company greater access to Valspar’s international portfolio in EMEA and Asia. It would also give Sherwin-Williams greater presence in industrial coatings, a key component of Valspar’s existing business.

Regulatory concerns and details

Sherwin-Williams and Valspar maintain that their businesses are complementary, and that a completed acquisition would not prove to be anticompetitive. The existing distribution models of both companies lend some credence to this argument and increase the chances that a deal will receive the necessary regulatory approval. The proposed deal also includes provisions to lower the purchase price should divestments be required, and also provides Sherwin-Williams with an opportunity to walk away from the deal if divestment requirements surpass US$1.5 billion.