The Finishing Touch
Invested Banker to the Consumer Industry

The Finishing Touch

Description
TARGET: Homax Group – Interior Finishing
OWNER/PARENT: Olympus Partners
COUNTERPARTY: PPG Industries, Inc.
SEGMENT: Home & Auto
TRANSACTION VALUE: Undisclosed
CLOSING DATE: July 2, 2014
ROLE: Exclusive Financial Advisor

The Homax Group (“Homax” or the “Company”), a portfolio company of Olympus Partners (“Olympus”), is a leading manufacturer and multi-channel marketer of branded, specialty products through two primary segments: (i) Interior Finishing and (ii) Specialty Cleaning.

The Interior Finishing business consists of an industry-leading franchise of professional grade and DIY repair and remodeling products, led by its flagship aerosol textures, sold under the Homax brand.

The Specialty Cleaning portfolio includes the Goo Gone, Magic, Stone Care International (“SCI”) and Natural Magic brands and comprises surface-specific and solution-focused home care products with a reputation for superior performance.

“Sawaya Partners demonstrated an unwavering commitment to supporting value creation at Homax over many years. Their contribution began with our purchase of Black Flag in 2007, extended through the years with strategic insight, and culminated with the sale of Homax’s two businesses, Specialty Cleaning and Interior Finishing, to Weiman and PPG, respectively. They understood the industry dynamics; had relationships with the key buyers; and, most importantly, executed on a multi-pronged strategy that maximized value for our shareholders. Despite the complexity of the business and sale process, Sawaya Partners remained persistent, creative and extremely professional. We could not have realized this outcome without their tremendous contributions from beginning to end!”

MANU BETTEGOWDA PARTNER, OLYMPUS PARTNERS

Homax was founded in 1982 as a manufacturer of innovative DIY products for drywall repair, at a time when a hopper gun was the only available method for applying drywall texture. With the development of its first aerosol texture product in 1992, Homax experienced a period of sustained growth and distribution expansion, accelerated by several acquisitions, during which it emerged as a leading vendor to the fast-growing Home Center channel. Under the ownership of Olympus, which acquired the Company in 2004, Homax continued to successfully execute its growth strategy through deeper penetration of existing markets and successful acquisitions, including Natural Magic (air care), Stone Care International (specialty cleaning) and Black Flag (insecticides).

In 2009, Larry Porcellato was appointed CEO of Homax, with a mandate to reposition the business in order to better address the post-recession market environment. Under Larry’s leadership, Homax implemented a number of strategic and organizational initiatives aimed at driving continued profitable growth. Certain product lines were divested (e.g., Black Flag) and the portfolio was further streamlined to refocus on core products and accounts. The supply chain was overhauled to drive efficiency and flexibility. Cost savings were used to fund significant investments in marketing and product innovation, which resulted in strong business momentum and highly visible and sustainable growth opportunities, largely centered on the Company’s (i) new line of professional grade (“Pro Grade”) aerosol textures and (ii) Goo Gone product extensions. Over the span of the subsequent transaction process, Sawaya Partners’ ability to work alongside Olympus and Management to effectively articulate the value proposition associated with these two initiatives would prove critical to a successful outcome.

““It was a tremendous experience to work with the Sawaya Partners team throughout the Homax sale process. Their in-depth knowledge of both of our market segments, DIY and household cleaning, enabled us to craft compelling strategic value propositions for our two businesses, Interior Finishing and Specialty Cleaning. In addition, Sawaya Partners orchestrated a sale process which was at the same time efficient and flexible, and which resulted in an outcome that optimized the value and terms for our assets. My team could not have hoped for a better advisor to help us through the two phases of our process and to reach this important milestone.”

LARRY PORCELLATO CHIEF EXECUTIVE OFFICER, THE HOMAX GROUP




Olympus decided in early 2013 to explore a sale of the Company having successfully repositioned the business during the economic and housing market downturn, and in light of the rapidly improving prospects for the business as a result of the new product development initiatives and housing market recovery. Olympus engaged Sawaya Partners on the basis of its position as the leading M&A advisor to the Household Products and DIY sectors, its extensive network of relationships across these two segments, and its proven track record of success in the sale of portfolios.

Sawaya Partners orchestrated a tailored, “strategic-only” process designed to maximize the all-cash value for Homax with the expectation that acquisition proposals would recognize the Company’s leading brand equities, potential synergies, strategic value, and prospects for growth. The clear preference would be for the sale of the Company in a single transaction. However, given their distinct profiles, separate proposals for the respective Interior Finishing and Specialty Cleaning segments would be considered if, taken together, they offered a compelling valuation. And, in fact, the initial indications of interest received confirmed that selling the businesses in two separate transactions would maximize the value of Homax.

Sale of Interior Finishing: In response to the public announcement of the sale of Specialty Cleaning, several parties that had previously expressed their interest in Interior Finishing contacted Sawaya Partners and Olympus Partners to determine if the timing was right to re-engage in acquisition discussions for the remaining operations of Homax, the Interior Finishing business.

PPG Industries, Inc. (“PPG”) was one of these parties. With its acquisition of Akzo Nobel’s North American architectural coatings business in early 2013, PPG had firmly established itself as the nation’s leading coatings industry consolidator. The Interior Finishing business would prove to be an ideal fit for PPG as a result of its:

  • Dominant market share in the highly profitable, niche aerosol textures category
  • Proven success of the Pro Grade launch into the home center and independent channels
  • Opportunity to expand the aerosol textures addressable market through innovation and leveraging of PPG’s customer relationships and distribution capabilities
  • Asset-light, “turn-key” supply chain affording a high return on investment
  • Valuable and defensible intellectual property
  • Substantiation of the unit’s pro forma standalone profitability
  • Overall synergies available to PPG with the business fully integrated



Transaction Execution: Sawaya Partners closely assisted Homax and Olympus in all elements of a 75-day due diligence process which delved into detailed legal and accounting support beyond the typical commercial/business elements. Sawaya Partners also provided assistance at critical junctures of the contract negotiations based on its trusted relationships with both the seller and buyer. On June 4, 2014, PPG entered into a definitive agreement to acquire 100% of the stock of Homax with an anticipated closing during the 3rd quarter of 2014. On July 2, 2014, the parties announced that the transaction had successfully closed.

“I have worked with many M&A advisors over the years and few, if any, have been as deeply entrenched and supportive on a transaction as the Sawaya Partners team was on Homax. This was not an easy engagement — two sale processes had to be run simultaneously and the structure was constantly evolving over 14 months. With their deep industry knowledge Sawaya was able to uniquely position the businesses for each strategic buyer, highlighting strategic and financial synergies and integration fit. Their hands-on approach to helping with financials and managing diligence requests took a tremendous burden off of our Management team. The outcome was an important milestone for our fund given the lifecycle of our investment in Homax and it would not have occurred if not for the significant contributions made by all members of the Sawaya team working seamlessly with our team and Homax’s Management. Bottom line, Sawaya Partners delivered for us and, candidly, we could not have done it without them!”

JASON MILLER PRINCIPAL, OLYMPUS PARTNERS

Sawaya Partners received high marks from all parties involved in the execution of the two Homax transactions. Optimizing the value of Homax required an advisor who had expertise in multiple industry sectors, was experienced in understanding and presenting carve-out economics, and was persistent and creative in the tightly orchestrated execution of the two transactions. The successful completion of these transactions marks another milestone in Sawaya Partners’ track record for maintaining its industry leading completion rate. Most importantly, the outcome of this process has positioned the two key Homax franchises – Interior Finishing and Specialty Cleaning – for continued growth into the future as part of larger corporate enterprises.

“It has been an incredible journey since I originally joined Homax in 1993. In engaging Sawaya Partners for this important sale process, my team could not have asked for a better qualified or committed firm. The Sawaya team was available 24/7, and assisted us in many areas beyond the typical sell-side services. For example, Sawaya Partners assisted our finance team on a wide range of business and accounting-related schedules throughout the sale process, not the least of which was the complex preparation of the carve-out and standalone financials for Specialty Cleaning and Interior Finishing, respectively. In addition, the Sawaya team served as true value-added partners alongside us throughout the extensive diligence processes required for multiple buyers in connection with the two sale transactions. I would highly recommend using Sawaya Partners to anyone seeking to maximize value in the sale of a consumer business.”

JROSS CLAWSON PRESIDENT, THE HOMAX GROUP

Video