Graco President and Chief Executive Officer Patrick McHale said there were compelling reasons why his company purchased ITW’s finishing business in April, which they hope will result in $1 billion in combined sales.
Graco CEO says ITW companies will stand alone
Graco buys ITW Gema for $650 million, hoping to grow business to more than $1B
“We just like a lot of things about this about this acquisition,” says McHale, who will add equipment lines such as Gema powder finishing, Binks industrial pumping, DeVilbiss auto refinish guns, Ransburg electrostatic guns, and BGK curing technology to the Graco line-up.
“This deal strengthens our industrial segment with some very high quality brand,” he says. “We had a very good position in wet paint, but none in powder coating. We understand their sales process, and now this gives us scale, especially in China, India and South America.”
Graco (Minneapolis, MN) entered into a definitive agreement April 14 to purchase the operations of ITW’s finishing business in a $650 million cash transaction. The deal is expected to close in June, but there is a $20 million termination fee if it falls through.
McHale says the plan is to operate Gema, Binks, DeVilbiss, Ransburg and BGK businesses largely on a stand-alone basis, with no plans to integrate facilities, sales forces or distribution. The ITW operations had 900 employees who helped produce revenues of $305 million in 2010 ‑ of which 40% were in the Americas and 60% elsewhere ‑ but McHale said they bought the company because of their “strong management.”
“We see great opportunity in cross-selling,” he says. “We want to establish a leadership position in powder coating, too, and as we traveled around the country looking at the ITW factories and operations, we feel very strongly we can get there.”
David Lowe, who heads the Industrial Products Division for Graco, says ITW’s finishing business has done very well in establishing their brands around the globe.
“Their business competes at the premium market, and we have experience in many of the same industries that they do well in,” says Lowe. “A big factor for this purchase was that ITW has a strong footprint in emerging markets. With the powder equipment brand, we are becoming associated with a technology leader. Their product line is a very good strategic fit for us.”
In addition to providing equipment for spray finishing, protective coating and paint circulation, Graco also produces lubrication, dispensing sealants and adhesives, and power application equipment for the contractor industry.
Graco reported strong 1st quarter sales after announcing the ITW deal, saying it had 32% growth in overall sales to $218 million.
But analysts on a conference call with McHale, Lowe and CFO James Graner after the acquisition was announced were skeptical of McHale’s estimate of 20% growth, including 4-6% organic growth this year.
Don’t worry, McHale said.
“Those estimates are more consistent with historical industrial recovery, which I think we are in,” he says. “(The former ITW finishing businesses) will track right along with us.”