RPM is ramping up deal-making in 2017

MEDINA, Ohio—RPM Inc. CEO Frank Sullivan says there's a reason his Medina-based specialty coatings company closed on five acquisitions over a two-month period in December and January: Donald Trump.

But Sullivan said there's another reason RPM intends to keep up the fast pace of acquisitions it's been keeping in recent years: growth.

The company will continue to do a large quantity of deals, but of smaller companies, in keeping with its strategy to grow via acquisitions, he said.

"We want to get as many plate appearances as we can, but we're never swinging for the fences," Sullivan said. "We'd rather hit for average and get singles and doubles."

For the record, in December RPM closed its acquisition of the foam division of Clayton Corp., which has annual sales of $60 million. It also purchased SPS Group, a Dutch decorative and specialty coatings company with annual net sales of approximately $60 million.

Then, in early January, it bought Arizona-based Prochem and Missouri-based Arnette Polymers, companies with combined sales of $42 million. And on Jan. 17, RPM purchased Conyers, Ga.-based Prime Resins, a small company with just $7 million in annual sales, but one that makes products RPM hopes will be used in national infrastructure investment.

Those deals piled up at the end of the year partly because of the election, Sullivan said, as sellers tried to time their sale to close in the year they thought would have the lowest tax rate on capital gains.

"The deals we announced in January were all deals set to close at the end of November," Sullivan said. "In each case, they had wanted to be sure it got closed before Dec. 31, because ... they were sure Hillary Clinton was going to elected and raise taxes for 2017."

Like a lot of folks, Sullivan's sellers were surprised when Donald Trump won instead.

"Then they all wanted to push their deals into 2017 because now they were convinced the capital gains they would pay in 2017 would go down," Sullivan said with a chuckle. "Donald Trump gets elected and each one of the three sellers says, 'Stop. We're closing in 2017, not 2016.'"

But while those deals might have gotten packed into a short time span because of the election, they are not out of character for RPM. They're also an indication of its future plans.

For a company like RPM, with nearly $5 billion in annual sales, these deals are small. But they dovetail with existing products and allow the company to cross-sell new products and gain a presence in new markets and geographies.

They lower the cost of sales, and provide savings, because RPM does more integration than it used to, Sullivan said. As a result, the deals impact earnings even more than sales.

Sullivan, the third generation of his family to take the helm of RPM, said he's continuing a strategy begun by his father, who vowed when he took over in 1971 that he "would either grow the business or sell it."

His strategy was to grow both organically and by acquisition, and, as a result, RPM has acquired 150 companies over the last 30 years.

Frank Sullivan has only amped up that policy. In the last 10 years, under his leadership, RPM has closed on more than 70 transactions.

The only reason it was even able to close a flurry of deals at the change of the year was because those deals already were in the pipeline, Sullivan said. That pipeline's still full, and it likely will remain so, because of the company's aggressive acquisition strategy.

"We probably look at 50 to 60 opportunities a year," Sullivan said. "When you boil that down, you get the six, seven or eight (deals a year)—or it might be more like 10, but you boil it down to 10 that are a good strategic fit."

There is, of course, competition to buy the best companies. RPM might have a leg up on some of its rivals, aside from its ability to outspend many of them. The company has a reputation of allowing business owners to remain active in their businesses, even after they sell them to RPM. Many of the company's top executives are former owners of acquired companies, Sullivan said.

"You can sell your business to us on Friday and go back to work on Monday," Sullivan said.

While some owners do want to retire, the ability to remain involved is a very big deal and an attractant to many potential sellers, say investment bankers who work on industrial mergers and acquisitions.

"Their approach is more stand-offish, and they're not going to fully integrate the acquired business," said Kevin Mayer, a managing director at Western Reserve Partners in Cleveland. "For many of our clients, they have middle-market companies that are family owned and that can be attractive. They don't want to see what they've created over a lifetime kind of assumed into a larger organization on day one."

Bill Ridenour, CEO of the boutique M&A firm Polymer Transactions, agreed. He thinks RPM probably gets to talk to more people than most other acquirers because of its reputation for gentle integration, and for doing deals quickly with a team of well-seasoned people to do due diligence and handle transactions.

"RPM has a very fine reputation as an acquirer because their reputation is they buy businesses, keep the management team in place and turn them into associates," Ridenour said. "When they call someone and say they're interested, most people want to hear what they have to say. They are their own best door opener."