AVON LAKE, Ohio—Stephen Newlin has been in the chemical industry for 33 years. In that time, he said he's never been more excited about an acquisition than he is of PolyOne Corp.'s recent purchase of ColorMatrix Group Inc.
Newlin has almost half-a-billion reasons to be excited. He's the chairman, president and CEO of PolyOne, the Avon Lake-based materials firm that's paying $486 million for ColorMatrix, a maker of liquid silicone colorants, additives and fluoropolymers in Berea, Ohio.
“Among the multitude of opportunities we reviewed this was by far the best,” Newlin said during an Oct. 25 conference call with stock analysts. “ColorMatrix is a true specialty company ... with a relentless focus on innovation and customer service.”
Newlin described ColorMatrix's 98 percent customer retention level as “the highest I've ever seen.” ColorMatrix has annual sales of almost $200 million and had pretax profit of almost $44 million in the year ended June 30.
For PolyOne, the acquisition means that more than half of its sales now will come from specialty businesses. Newlin has aggressively focused the company on specialties since he moved into the corner office in 2006.
PolyOne's John Van Hulle described ColorMatrix as “a highly specialized company with a premiere suite of application technologies” and 162 patents. ColorMatrix “has a strong reputation for innovative technologies,” he said during the conference call.
He also pointed out that 95 percent of ColorMatrix's liquid color customers use the firm's proprietary dosing equipment. Van Hulle referred to this as a “razors and razor-blades approach.”
Liquid colorants account for 42 percent of ColorMatrix's sales, with 38 percent coming from performance additives and 20 percent from fluoropolymers and silicone colorants. Packaging is the firm's largest end market with a 54 percent shares of sales.
North America is ColorMatrix's largest sales region with a 30 percent share, just ahead of Western Europe at 29 percent. Officials said that ColorMatrix leads the global liquid colorant market with a 34 percent share.
Newlin also addressed the 11x multiple that PolyOne is paying for ColorMatrix. That's a higher multiple than Audax Group — an investment firm in Boston — paid for the firm in 2006.
“This is a game changer for PolyOne, much like when we acquired [GLS Thermoplastic Elastomers] in 2008,” Newlin said. “And much like with GLS, we're paying a fair price for ColorMatrix. [The price] is in line with specialty company multiples.”
The ColorMatrix deal didn't happen overnight for PolyOne, which ranks as North America's largest producer of compounds and concentrates and as one of the region's largest resin distributors.
“Often, companies make acquisitions for the wrong reasons,” Newlin said. “But this is no cost play or capacity reduction strategy. We had our eyes on [ColorMatrix] for five years, as did many others. It was a competitive bidding process.”
He also addressed some of his comments to ColorMatrix employees, saying “I assure you this is not a buy and flip story ... but a long-term investment in the future.”