Launched two consecutive acquisitions Nippon Paint to expand its influence in Europe

In 2021, we have already seen PPG acquire Tikkurila, bringing more U.
S.
input to the European coatings market
.
In October, Nippon Paint announced plans to acquire two major European paint manufacturers: Cromology, the largest and most important, and JUB, the second
.

The Cromology deal is especially important in terms of access to a huge market
.
Historically, the company has its roots in French building products company Lafarge, which formed its own coatings manufacturing division, Lafarge Peintures, as part of Lafarge's Specialty Materials business
.

Lafarge started its acquisition strategy with Tollens Peintures in 1995, and 20 years ago, Lafarge Specialty Materials changed its name to Materis and its paint business was renamed Materis Paints
.
During the millennium, the company made acquisitions in Portugal, Spain, Switzerland, Italy and France, as well as Morocco on the Mediterranean coast
.
In 2016, Wendel became the majority shareholder of Materis Paints, and in 2018 changed the name of the entire group to Cromology, while bringing new management to the operation
.
Wendel sold to Nippon Paint for 1.
152 billion euros (cash), more than 14 times the estimated 2021 EBITDA figure
.
The deal looks set to close in the first half of 2022
.

The deal appears to have been planned and managed primarily through the operations of the Australian Dulux Group
.
Nippon Paint expects Dulux Group's experience and management of its brand portfolio, as well as its tight control of distribution activities in both DIY and trade channels, to benefit it going down the road
.

Speaking to investors about the deal, Nippon Paint made it clear that its focus was on acquiring the regional decorative coatings business
.
Notably, in addition to its multinational portfolio of decorative coatings business, Cromology also sells exterior insulation systems, decorative aids, wall and floor coverings, and waterproofing systems
.

In recent years, Nippon Paint has officially identified Europe as a region in its annual results releases, but it will now have a greater presence in Western Europe with the Cromology acquisition, which significantly increases its decorative paint business in Turkey and Automotive paint business
.

In its 2021 comprehensive report, Nippon Paint surveys the global coatings market
.
With the exception of France and Italy, the European coatings market (including Turkey) is expected to grow between 2-5% during the period to 2024, while the French and Italian coatings market is expected to grow by an average of no more than 2%
.
Africa fared much better, with growth rates of over 5% across the continent
.
In 2019, Nippon Paint valued the global coatings market at US$165 billion, which is expected to increase to US$202 billion by 2024, representing an average annual growth rate of 4.
2%
.

Despite declining growth potential in France and Italy, the deal paves the way for Nippon Paint to gain a greater presence in both countries
.
About 67% of Cromology's turnover comes from France, where the decoration industry is moderately consolidated, and another 12% from Italy, which is still very fragmented
.
These varying degrees of fragmentation echo the fact that the deal gave Nippon a market leader in Italy but second in France
.
It is worth mentioning that the total value of the French coatings market is 1.
6 billion euros, and Cromology has a 14% market share in the country
.
Cromology's sales are primarily derived from decorative coatings
.

In other countries, Cromology ranks second in Portugal and third in Spain and Morocco
.

The deal brings nine manufacturing sites in EMEA into Nippon Paint's global production network
.
Four of them are in France, two in Italy, and one each in Spain, Portugal and Morocco
.
The company also has a distribution network of 386 company-owned stores
.

In France alone, there is a strong distribution network operating under two main brands
.
The Tollens brand (168 stores) focuses on interior and exterior coatings and colors, while the Zolpan brand (144 stores) focuses on interior and exterior coatings and exterior insulation systems
.
The majority of sales in the French Cromology trade unit are made through its own distribution activities, thanks to good brand control and carefully selected locations
.
The performance of the company's directly-operated stores has been a core strength of the business in recent years, as the French home improvement market has been strong, although the company has seen good growth in different regions since the management change in 2018
.

In all cases, most, if not all, of the sales in the "other" region came from Europe, where Nippon had already achieved sales growth by 2015 with the acquisition of German automotive coatings maker Bollig & Kemper
.
This is the beginning of the company's changes to its turnover distribution
.
The Dulux Group's acquisition of Australia and New Zealand makes Oceania a unique region for Nippon Paint's sales and is rapidly growing to account for nearly one-fifth (19%) of Nippon Paint's total turnover in 2020
.
At the time, it also increased Nippon Paint's presence in Europe by acquiring Scottish paint maker Craig & Rose, which the Dulux Group had previously acquired
.

Amid all these acquisitions, Nippon Paint's reliance on Japan has fallen from 33% of sales in 2015 to 20% in 2020
.
The company's share in Greater Asia (China, India and ASEAN markets) fell from nearly two-thirds in 2015 to 45% in 2020
.

Based on Nippon Paint's 2020 turnover, the Cromology acquisition is expected to add another 686 million euros (90 billion yen) to Nippon Paint's sales
.
All sales are made in the EMEA region, but only 62% of the turnover in 2020 came from coatings (about 440 million euros out of 710 million euros)
.
The expected increase in EBITDA from the transaction is EUR 80 million
.

Nippon Paint ranks No.
4 in the global coatings market with about 4.
5% share, and although the deal will boost that share, its ranking will remain unchanged
.
According to Nippon Paint, Sherwin-Williams accounted for 18% of the global market share, PPG accounted for 15%, and AkzoNobel ranked third with 11%
.