M&A opens up to strategic buyers - US RPM

03 April 2008 22:27  [Source: ICIS news]

HOUSTON (ICIS news)--The value of several merger and acquisition (M&A) targets have dropped, opening up potential deals for US coatings and sealants producer RPM, including a pending European acquisition, the company's chief executive said on Thursday.

During the most recent M&A boom, private-equity firms inflated valuations of several businesses, said RPM's Frank Sullivan during a conference call wth analysts.

The valuations were typically 20-30% above RPM's, Sullivan said. The discrepancy was especially large for large transactions, which RPM defines as deals worth $200m-300m (€128m-192m).

Such high valuations made sense only to financial sponsors, which could get low-cost capital debt with virtually no covenants, he said.

RPM was priced out of the market, Sullivan said. RPM was a strategic buyer, and it acquired assets based on how well they fit into the company's existing businesses.

However, valuations have since dropped, he said. Assets are no longer fetching valuations with multiples of 9-12 above earnings before interest, taxes, depreciation and amortisation (EBITDA).

"That era is over," Sullivan said. "I think they are going to be gone for a long time."

In fact, some private-equity firms are trying to sell assets in order to generate liquidity, he said.

Any valuation gaps that still exist among buyers and sellers will likely be resolved through capitulation, Sullivan said. Those deals will either be done at lower valuations, or they will not be done at all.

"We think the M&A market for the next couple of years should be very favourable for companies such as RPM," Sullivan said.

Already, the company has closed on two deals this year.

RPM has bought Prosytec, a $39m provider of sealants in southern and Eastern Europe. RPM also bought Increte Systems, a $15m US company that makes decorative concrete systems.

A third $80m deal could close in the next couple of weeks, Sullivan said. The unnamed company is a European firm that serves industrial customers.

($1 = €0.64)

By: Al Greenwood
+1 713 525 2653

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