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U.S.-Ordered Sale to Profit Graco

Monday, October 13, 2014

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A shotgun divorce ordered by the U.S. Federal Trade Commission will end lucratively for Graco Inc., as the spray-equipment giant prepares to sell of its Liquid Finishing business at a nine-figure profit.

Two days after receiving a final FTC order to divest its liquid finishing subsidiary, Graco announced the sale of Illinois Tool Works Inc. and ITW Finishing LLC for $590 million cash.

Graco bought those companies two years ago for $422 million.

GracoMontage
Graco Inc.

Citing antitrust concerns, the FTC has ordered Graco Inc., the world's largest spray equipment maker, to sell off the Finishing Brands business, which it bought in 2012 from its chief rival.

The new buyer is Charlotte, NC-based Carlisle Companies, headed by former Graco CEO and chairman David A. Roberts. Roberts left Graco in 2007 for Carlisle after seven years as CEO there.

What's Included

The Liquid Finishing sale includes Binks spray finishing equipment, DeVilbiss spray guns and accessories, Ransburg electrostatic equipment and accessories, and BGK curing technology. All of those brands were part of ITW, then Graco's biggest competitor, when Graco acquired that company in April 2012.

The 2012 acquisition also included Gema, a global supplier of powder coating technology. The Gema purchase, however, passed the FTC's antitrust muster and is now part of Graco, where it will remain.

RansburgFinishing
Finishing Brands

Graco bought Ransburg Industrial Finishing (pictured) and the other Finishing Brands assets of ITW Finishing in 2012 for $422 million. Last week, it announced the sale of the business for $590 million.

With annual sales of about $275 million, Liquid Finishing Brands is a global manufacturer and supplier of liquid finishing equipment and systems serving diverse end markets for paints and coatings, including OEM automotive, automotive refinishing, aerospace, agriculture, construction, marine, rail and other industrial applications.

The business, which will be rebranded as Carlisle Fluid Technologies, operates from 26 locations in seven countries with half of its sales in the Americas and half split between Asia and Europe.

The sale will make Graco and Carlisle competitors in the spray equipment business.

Anatomy of an Antitrust Case

If approved, the FTC order and Finishing Brands sale would end a three-year antitrust dust-up involving the world's largest supplier of spray equipment.

BinksIndustrialFinishing  
Finishing Brands

Finishing Brands includes Binks (pictured) and other leading industrial spray equipment brands.

The case dates to April 2011, when Graco announced its plan to take over ITW, then its chief rival. The acquisition was Graco's largest ever. Later that year, however, the FTC moved to challenge the takeover with an administrative complaint and federal-court action.

The agency called the acquisition "a bad deal" that would hand Graco a monopoly in the North American spray-finishing market.

“Graco’s proposed acquisition of ITW, its largest and most significant competitor, threatens to harm competition for certain industrial liquid finishing equipment in North America and lead to higher prices for North American distributors and end users already struggling in today’s economic environment,” the FTC complaint said.

Eventually, the FTC allowed the deal to close in April 2012, on the condition that the ITW businesses (formally known as Finishing Brands Holdings Inc.) and their assets (Liquid Finishing Brands) be kept separate from Graco's other businesses and out of the company's direct control.

DeVilbiss
Finishing Brands

An FTC official called Graco's purchase of DeVilbiss and other brands "a bad deal" for the industry.

Two months later, the FTC preliminarily ordered Graco to sell off the ITW businesses, but a final order has been pending since then.

An FTC Bureau of Competition spokeswoman told the Minneapolis Star-Tribune last week that the Illinois Tool Works purchase “raised competitive concerns for us” as it would have merged two of the nation’s largest makers of auto paint equipment.

6-Month Deadline

While the FTC's consent decree pulled the trigger on the divestment order, the Carlisle deal has been in the works for some time.

Carlisle is a global diversified company that designs, manufactures and markets a wide range of products that serve a variety of niche markets, including construction, commercial roofing, energy, aerospace and defense electronics, health care and sanitary maintenance.

“When we heard that Liquid Finishing Brands would be sold, we immediately pursued the opportunity to acquire the business,” Roberts said in an announcement.

CarlisleCoatings CarlisleAVB
Carlisle Companies

The Carlisle Companies include Carlisle Construction Materials, maker of fluid-applied membranes (left), air and vapor barriers (right), coatings, wall systems, and a wide range of other materials.

“We have made a solid commitment to build a new Carlisle segment as a viable, global competitor to Graco with liquid finishing brands as the foundation and believe that it will be a significant contributor to the success of Carlisle in the years to come.”

Graco has expressed disappointment over the FTC's intervention, but a statement last week by president and CEO Patrick J. McHale looked on the bright side.

“The Gema business is a strong performer and an outstanding strategic addition to our portfolio,” McHale said.

“We are happy to have Gema as part of Graco and are looking forward to continuing to build upon its strengths.”

   

Tagged categories: Acquisitions; Binks; Business matters; Carlisle Coatings; Carlisle Construction Materials; DeVilbiss; Federal Trade Commission; Graco; ITW Industrial Finishing; ITW Ransburg; Spray equipment

Comment from Andrew Piedl, (10/13/2014, 10:16 AM)

It is curious that one company controls 80% of the (subsidized) corn and 93% of the soy planted in the US, and that the same company has influence (former executives) at the FDA; yet the FTC is concerned about a manufacturer of spray equipment having a monopoly. Seems sort of lop-sided.


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