Mohawk Industries Inc., which bills itself as the world's largest flooring company, is acquiring IVC Group — a rapidly growing manufacturer of luxury vinyl tile (LVT) in Europe — in a $1.2 billion deal that the two companies have talked about for years.
Based in Calhoun, Ga., Mohawk has spent the last decade transforming itself from a U.S. carpet maker to a global flooring manufacturer with operations in 10 countries and net sales of $7.3 billion in 2013 and $5.9 billion through the third quarter of 2014.
IVC, which got its start in Belgium in 1997, has been growing, too. The company, which also makes sheet vinyl and laminate, has sales of about $700 million. In Europe, IVC built the first high-speed LVT production line in the world to compete with imports and it is building a luxury vinyl plank and tile facility in Dalton, Ga. that will have a capacity of $200 million.
Overseas on IVC's home turf, Mohawk is constructing an LVT factory with about $150 million of capacity in Belgium, which gives the two companies a lot of potential synergies in terms of sales, manufacturing, transportation and administration in Europe and the United States, Mohawk Chairman and CEO Jeff Lorberbaum said in a Jan. 14 conference call.
LVT, which replicates the look of natural hardwood planks, mosaic tile and stone, is about a $1 billion market in the United States, and it is taking share from laminate, sheet and ceramic flooring for both residential and commercial customers.
“The greatest opportunities from the IVC acquisition are in LVT, which has increased globally around 18 percent in the past year,” Lorberbaum said. “IVC is the fastest growing LVT supplier in Europe, and IVC's manufacturing expertise will help start up our new Belgian LVT factory faster. This new plant will allow IVC to further expand their European sales.”
In the United States, LVT represents about 5 percent of the total flooring market, but sales are projected to grow more than 15 percent annually over the next five years, Lorberbaum said, adding that IVC's plant in Dalton will be one of the world's largest and it will position Mohawk to meet the domestic demand. The facility should be open in the second quarter.
“The market needs approximately one new plant or greater every year,” Lorberbaum said. “At the same time, local players are expected to take share from the imports, which is what happened in other categories, such as ceramic and laminate, as the product category evolved. We think the same thing will happen here.”
Both IVC and Mohawk brands will remain in the marketplace with support from different staffs for sales and product development. Lorberbaum said IVC's products, particularly its sheet vinyl with a fiberglass core, will compliment Mohawk's existing offering and satisfy all consumer preferences.
Mohawk will finance the deal with $130 million of stock, and the balance with new debt, Mohawk Chief Financial Officer Frank Boykin said. IVC Chairman Filip Balcaen was offered all cash but he wanted to be a shareholder in Mohawk.
The purchase price includes $115 million for the Dalton plant and a new digitally printed laminate line, which also isn't operational yet, Lorberbaum said. Excluding those new assets, Mohawk is paying about 9 times 2014 estimated earnings before interest, taxes, appreciation and amortization (EBITDA), he added.
Boykin said about 50 percent of IVC sales are in sheet vinyl followed by 30 percent from laminates and 20 percent from LVT. Geographically, Europe accounts for 60 percent of the sales followed by 20 percent in the United States, 10 percent in Russia, and 10 percent in the rest of the world.
“The acquisition of IVC will put us in a leading position in all flooring categories around the globe,” Boykin said.
Everyone finally agreed the value was right, Lorberbaum said.
“There have been conversations with the company over many years,” he said. “We continued the communications. We always liked the business they had.”
He said IVC distinguished itself from other LVT manufacturers by opening the first automated LVT plant in Europe.
“They have knowledge that's different than the others,” Lorberbaum said. “Second, IVC's plant in the U.S. took that knowledge and we believe it gives us proprietary differentiation and cost positions. Third, they'll be the first plant open in the U.S. to satisfy the market. We believe those things compliment our business.”
The U.S. market, which makes up about 70 percent of Mohawk's business, will continue to be the company's primary focus, Loberbaum said.