January 22, 2013
Interviewed by: David Snow
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Deal Story: Chromaflo

Terrence Mullen of Arsenal Capital Partners discusses the thesis behind his firm’s investment in chemical company Chromaflo.

Terrence Mullen of Arsenal Capital Partners discusses the thesis behind his firm’s investment in chemical company Chromaflo.

Told by Terrence Mullen of Arsenal Capital Partners

 Mullen: So we invested in ChromaFlo, it’s one of our special industrial strategies within the coatings, sealants, and adhesives area. We’ve been very successful in that area, looking for very high value-added technology rich businesses, often at critical points in the supply chain so you’re not selling a product by the pound, you’re selling it by performance. We also like businesses that enable custom formulations. So you’re not selling a commodity product, you’re selling a solution. And when we looked at, we’ve done a roll-up-, we’re currently doing a build-up in the sealants and adhesive space in Royal. We started that in 2010 with two key platforms and have been building that up. But the Chroma Flow is exciting in the color rinse space. And if you know the paint market, there are actually thousands of paint companies around the world. That’s not too exciting. It’s pretty commodity. And if you look at all the way back in the supply chain, you know, the pigments or powders that go into the supply, into the paints, not so exciting either. But there’s a critical conversion point, what you need to turn the powdered pigment into a liquid colorant so it can be precisely metered and blended to provide different types of performance characteristics for the end paints. We looked at that as a pretty exciting market. There were a handful, just a handful of large, integrated players who do everything and we looked at the independent colorant providers and there were two companies that stood out. One was a business named Color Trend and the other is a business in Ohio named Plasticolors. And so they each had different technology, each largely serving different markets. And what we saw was an opportunity to put the two businesses together.  The business in Ohio was owned by the management team and they were looking to grow internationally and looking to expand and looked at the opportunity to buy this business with us and really combine two businesses, great technology platform combined, strong global presence and leverage that. And really we created the world’s largest independent colorant business.


What current trends will help the company grow?


Mullen:  So a couple of the kind of micro-trends or drivers for making paints exciting. One is that there are important regulatory trends on emissions. We talked about emissions before. These, you know, low-emission and no-emission paints are important. So I think water-based paints. Technologies that go into many more things, you know, plastics for example, but really putting quality color into plastics whether it’s for automotive, recreational use, whatever it is, there are good trends there. The color rinse themselves really the quality of colorants drive the end performance attributes of the paint, whether the paint runs, whether it drips, what rate it dries, how durable it is, interior/exterior use. And so most people think about paints as, you know, the architectural applications in our offices or in our homes. But the industrial applications are big. And when you think about the global supply chain, parts are being made around the world and having different parts the same color. If you’re going to be making snowmobiles and they have to be a certain color, bright red or yellow or whatever it might be, and the parts may come from different parts of the world, automotive the same thing. And so having precise colors, having consistency of colors, there’s a big, you know, kind of megatrend for growing wealth around the world for consumers. Particularly in Asia. And the ability to not just have, you know, in some countries or regions you can only get four or six colors of paint but the technology which we enjoy to be able to go into a Home Depot in America and pick an exact pantone color and, you know, press a couple buttons in the computer, precisely blends the exact paint you want, that technology has not at all penetrated many parts of the world. So the colorant and the quality of the colorant is essential to do that. And so we see good, organic growth rate from the rising wealth in emerging markets and these little preferences like whether you can pick, you know, one of six colors or maybe one of a hundred colors. We think those things in the margin are going to make a difference.



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