Riding THE Wave

In December of last year the private equity firm American Industrial Partners completed an acquisition of the architectural coatings division of PPG, leaving independent PPG dealers anxious for the future of that brand.

And employees worse off than that.  

In the months since that closing Pittsburgh’s management has shared little which would quell fears the company might be broken up further, and remained silent after a round of layoffs at their corporate headquarters

Their silence likely signaling their intent,

But earlier this month Pittsburgh broke their vow of silence making their first major announcement of the PPC era, though it wasn’t worth the wait. 

Pittsburgh could have used the occasion to address their shuffling of chief executives, current CEO Brian Carson is the company’s third in just four months.  Or to address rumors that the company’s manufacturing plants, distribution centers, stores and brands have been offered up for sale.

But instead Pittsburgh announced a change in their logo, which is the same as their old sans one notable feature.  A silly waste of the segment’s attention, when more important things need to be said. 

Last week a source with knowledge of the internal workings of PPG explained why that company was so fervent to sell their architectural coatings division, enough to allow AIP to acquire the $2 billion division for less than the value of the sum of its parts.

According to that source the divestiture was forced by pressure from an activist investor with a seat on PPG’s board who had lost confidence in management’s ability to turn the division around.

Not the first time that the PPG board lost confidence in management and felt the need to step in.

Harassed, PPG sold the division at a discount enough to allow the arbitrage AIP now considers, with the sale of hard assets alone enough to achieve a 50% return in the few months it would take to move the people and paper.

That same source shared that before AIP there was Masco shopping the PPG brands, at-least the ones available at Home Depot–Masco’s sole customer.  An unlikely suitor considering they have no stores nor dealers, plus the conflicts with Home Depot were Masco to attempt to maintain the brands.    

Leaving AIP to untie that knot.

THE Calm

In the moments before a tsunami the beach allows a tranquil stroll.  Made wider as the water gathers at sea to birth the great wave, the sand giving no indication of the violence about to be unleashed.

And as it is with tsunamis it is also with tariffs, whose impacts gather strength at sea leaving the shores calm until the wave arrives.  Harmlessly riding those waves at this moment are the brushes, rollers and other sundries found in most stores, mostly made in China they float harmlessly along the globes deepest waters. 

But when they hit the shores the humble paint brushes will do it with the ferocity of a tsunami, costing more than double the items currently on store shelves.

First to drown will be the sundry’s manufacturer who ordered and paid for these goods more than six months ago only to find their landed costs raised by 145%.

And that payment’s now due.

A week or few later those sundries will reach dealers, who will pass that increase down to the consumer, if there are any left.

Behind the counter my father used to gripe that “if you charged a painter $50 for a brush they still would not take care of it.”

We’re about to find out if dad was right.

THE gambler in me handicaps this a good time to buy inventory, brushes and rollers hold their value better than cash in times of high inflation. But this time might not be that time.

The administration’s capricious nature in applying their tariffs have brought instability to the US economy meaning dealers who bulk up might end up carrying that inventory through months of recession.

This tsunami’s second wave.

For dealers who agreed to participate in the dealer survey I’m expecting final approval this week, I’ll reach out once I have that.  Email me here if you’d like to participate and are an unbranded or regionally branded independent paint or hardware store.  Sorry, no more BM or Pittsburgh, you guys seem ready to talk!