AVON LAKE, OHIO (Updated Oct. 7, 12:30 p.m. ET) — PolyOne Corp.'s acquisition of ColorMatrix Group Inc. marries a major masterbatch house with a globally dominant player in liquid colorants, a formidable union as consumer-products groups seek one-stop-shop suppliers for their packaging needs.
The $486 million purchase, announced Oct. 3 by PolyOne, means that more than 50 percent of its operating income will be derived from specialty chemicals compared to 2 percent in 2005, PolyOne Chairman, President and CEO Stephen Newlin said.
Experts are not unhappy with the purchase price, which represents a valuation of 11 times earnings before interest, taxes, depreciation and amortization (EBITDA). Two sources agreed that it's not about the purchase price, but rather the return on investment. ColorMatrix is expected to provide about 15 percent return on investment annually.
“This is a great move and I do not have any problems at all with price they paid,” said Bill Ridenour, owner of Polymer Transaction Advisors Inc. in Newbury, Ohio. “Even if it grows modestly, it will grow out of that purchase price. Even at 10 percent growth in earnings per year, it will be a wonderful acquisition for them. This is a deal that they should be making. It could have made sense for any of the major masterbatch houses.”
PolyOne officials declined further comment until its Oct. 26 conference call when it will announce third quarter operating results.
The deal caps off an aggressive strategy to beef up PolyOne's specialty business. The force behind the strategy is Newlin, who has been PolyOne's top executive since 2006. Prior to that, he served as president of the industrial sector of Ecolab Inc. His career also included executive positions with Nalco Chemical Co., during which time he served as president of both Nalco Europe and Nalco Pacific.
He has a reputation as a very good operator, one source said. Newlin has been “ruthless in pursuit of that strategy but he's been successful,” Ridenour said. “The fact that the stock price dropped 25 percent didn't stop Newlin at all. I give him a lot of credit.”
Dmitry Silversteyn of Longbow Research LLC in Independence, Ohio, said that Newlin deserves the benefit of the doubt.
“PolyOne hasn't done anything in last few years to make me feel they are irresponsible,” Silversteyn said in an Oct. 5 telephone interview. “Goals that he put out in 2007 looked so out of reach and so fantastic, I don't think people took him seriously.”
Part of Newlin's five-year plan, PolyOne has already reached those goals.
“Clearly, he's a detailed and strategic thinker,” Silversteyn said.
ColorMatrix is dominating the world in liquid colorants, Ridenour said, and has unparalleled technical prowess and great depth of technology and technical staff.
The firm began in Cleveland in 1978, building its expertise in liquid colorant dispersion, according to its website. It established its position in injection molding and pipe extrusion. Through the 1990s, it grew its European business. The firm set up a joint venture in the United Kingdom to establish that European base. By the time it was acquired by Audax Group in 2006, it had footholds in Hong Kong and Brazil. Audax acquired ColorMatrix at a valuation of 9.6 times EBITDA.
After Audax purchased it, ColorMatrix acquired DosiColor in Latin America, and fluoropolymer firm Colorant Chromatics Group, which added to its growth in Europe. In 2009, it opened its commercial facility in Moscow.
In terms of technology, ColorMatrix is at the forefront, sources said. Now it has in its portfolio HyGuard Oxygen Scavenging System, an oxygen scavenger additive. ColorMatrix boasts it as game-changing, engineered to enable fully recyclable, fully protective PET packaging for oxygen sensitive beverages and food. It offers that product to the likes of beer makers Baltika and Heineken, along with soft drink companies such as PepsiCo and Coca-Cola Co.