PPG continues M&A efforts; 'very healthy number of people we're talking to'
24 APR 2018
PPG [NYSE:PPG], the Pittsburgh, Pennsylvania-based provider of paints, coatings and specialty materials, has an active acquisition process and is careful on valuation, CEO Michael McGarry said.
On the 1Q18 earnings call held 19 April, Morgan Stanley's Vincent Andrews asked for an M&A update.
"The biggest challenge we have right now is the fact that when you're trying to buy somebody whose earnings are going down, they want to look backwards to what they were doing 12 months ago, and we want to look at either what they're doing today or what they're going to do in the next quarter. And they want to get paid on what their business used to be," the CEO replied.
Because of this dynamic, McGarry described current conversations as "a little bit more challenging."
"We have a very healthy number of people we're talking to. In fact, we had a new one fly in last week. So I would tell you that the pipeline is still there," he said.
McGarry noted that PPG had historically preferred acquisitions over share repurchases.
"So we're going to continue to look hard at acquisitions. But if we can't do them, then we'll buy back stock," he said.
In his opening remarks on the call, the CEO said PPG ended the quarter with over USD 1.4bn in cash and short-term investments. The company expects to deploy a minimum of USD 2.4bn of cash in 2018 on acquisitions and share repurchases, he said.
PPG reports for two segments: Performance Coatings and Industrial Coatings. End-use markets include industrial equipment and components; packaging material; aircraft and marine equipment; automotive original equipment; automotive refinish; and commercial and residential new build and maintenance markets.
The remarks on last week's call added to those made on the previous earnings call in January 2018 when, as this news service reported at the time, CEO McGarry said PPG's most successful markets for M&A were mature regions such as North America and Europe. While there were a lot of things for sale in Asia, the multiples would not create value for shareholders, he said in January.
PPG used Goldman Sachs for the proposal to combine with AkzoNobel, which was withdrawn in June 2017. Morgan Stanley advised PPG on its 2014 purchase of Consorcio Comex for USD 2.3bn.
On the legal side, PPG's previous transactional advisors include Hogan Lovells, according to the Mergermarket M&A database. Wachtell, Lipton, Rosen & Katz and Allen & Overy were used for the AkzoNobel proposal.
PPG has a market capitalization of USD 27bn.
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