M&A Strategy

M&A basic policy

Our M&A basic policy is to promote M&A activities by leveraging our three pillars of competitive advantage underlying our Asset Assembler model: (1) our ability to harness the low-funding cost, (2) our ability to maintain and boost the EPS contribution from assets companies without intervention, and (3) our unique appeal to management-class talents who empathize with our modus operandi. Based on this policy, our current focus lies in promoting M&A activities in the paint and adjacencies areas, which offer a compelling risk/return advantage. Notably, the decorative paints market represents a significant portion of the paint and coatings market. It operates on a local production for local consumption basis, with each country and market adopting unique business models encompassing raw material procurement, consumer preferences, sales networks, and environmental regulations.
Apart from facing a low threat of substitute products, paints, particularly decorative paints, exhibit significant regional characteristics. Critical success factors in this market are as follows: (1) strong brand power; (2) a well-established distribution network; and (3) the establishment of operations with local expertise. Achieving the No. 1 market share based on these factors provides a substantial advantage, making it challenging for competitors to reverse the trend.
This market leadership enables further expansion in market share, followed by increased profits, creating a virtuous cycle of growth.

The paint market offers the potential for continuous growth centered on architectural paints, driven by population growth and urbanization, among other factors.

Source of data: ACA-published Global Market Analysis for the Paint & Coatings Industry(2019 -2024), https://paint.org/market
Note: Country/region total figures are market growth forecasts in 2019.

The key points of our M&A based on Asset Assembler model is outlined in the table below. We select acquisition targets which (1) contain low risk and stable earning flow, (2) possess strong brand and talented management teams, and (3) is expected to show EPS accretion from year one. Key partner companies which joined our Group since FY2014 have achieved strong growth in both high growth and mature markets.

We will strive to maintain our track record of accumulating successful M&A deals to widely convey the benefits of joining our Group to acquisition targets, while at the same time building expectations from the stock market as a company capable of consistently accumulating and expanding EPS.

Key points of the M&A strategy

*1: Return on invested capital (after one-off expenses)
*2: Weighted average cost of capital

M&A selection process

The diagram on the below illustrates our M&A selection process. After creating a long list of target companies, we assign priorities, examine feasibility, and hold thorough discussions, going into details such as the timing and proposal structure of M&A.
When choosing targets, the sole criterion is their potential contribution to MSV. Notably, personal egos, such as the desire to just pursue size or personal achievements, do not influence our decisions. For our Company, achieving the title of the world's largest company in terms of sales would hold little significance if the journey towards that goal were to harm shareholder value.
Therefore, when we examine a specific acquisition, we make judgment after holding multifaceted discussions on the degree of PMI led by Partner Company Groups and other risks involved with sound vigilance at all times. In the context of “Asset Assembler” model, human capital holds significant importance. To mitigate risks effectively, we have implemented mechanisms that involve commitments with local management and succession plans.
One essential financial discipline for us is to contribute to EPS accretion from the very first year. We refrain from making overly optimistic assumptions about justifying acquisition synergies, e.g. hoping for positive EPS only after three years of acquisition.
In our value calculations, we take into account not only metrics like PER and EV/EBITDA but also evaluate how executing the deal will impact the cushion in the Group's balance sheet.

A Platform that drives growth of both existing businesses and acquired companies

The strength of our platform based on Asset Assembler model lies in its ability to generate growth synergies for both existing and acquired businesses. This leads to higher earnings growth compared to the pre-M&A period. Notably, our approach goes beyond mere costcutting synergies often seen in the Western model.
Unlike many failed M&A by Japanese companies where impairments are often observed after several years post acquisition, all of our deals since FY2019 when we accelerated our M&A efforts have surpassed our expectations. This success in of itself is the evidence of our strength in platform. In the following, I will elaborate on the key success factors.

Co-Presidents maintain constant communication with local management while delegating authority and defining responsibilities for achieving results only after establishing a high level of trust based on factors such as their track record and commitment to growth. A streamlined decision-making process with local approval is adopted, ensuring swift and effective actions. Having management dispatched from headquarters can create a disconnect with the local staff, while a top management composed solely of e.g. Japanese may lead to a loss of motivation among talented local employees.
The role of our headquarters is to offer support to talented local management. In addition to fostering a direct consultative relationship with Co-Presidents, we provide Japanese yen-based funds for growth investments, leverage the Nippon Paint brands, and facilitate an autonomous collaboration platform among the partner companies. Of course, we do maintain certain aspects of control. Co-Presidents oversee the governance of our key subsidiaries. Headquarters retains its say in certain level of capital expenditures, as well as compensation and appointment/dismissal of CEO-class senior executives at subsidiaries. The strength of our platform extends beyond associates collaborating across borders, if needed, to achieve the common goal of MSV. It also encompasses active sharing of growth strategies for countries with both mature and emerging markets, brands and know-how from existing and new businesses, and raw material purchases among partner companies. Moreover, these partner companies have the freedom to make choices without being forced by headquarters. This blend of trust and accountability for results empowers us to foster growth through both existing businesses and M&A.

As a result, local management with a passion for growth can fully showcase their management skills, leading to an increase in companies that express interest in joining our Group.

Autonomous and decentralized management based on strong Trust in partner companies

Nippon Paint Group is pursuing autonomous growth through collaboration and cooperation among Group partner companies in each region based on autonomous and decentralized management based on Trust with our partner companies around the world.

M&A track record

Our key partner companies, which joined our Group since FY2014 based on our selection criteria for acquisition targets which (1) contain low risk and stable earning flow contributing to MSV, regardless of business categories or regions, (2) possess strong brand and talented management teams, and (3) are expected to show EPS accretion from year one, have achieved strong growth in both high growth and mature markets.

Company Name

Year

Country / Region

Business

Market share
(Decorative paints)

Growth since acquisition (revenue)

Dunn-Edwards

Company Name

Dunn-Edwards

Year

2017

Country / Region

USA

Business

Decorative paints

Market share (Decorative paints)

-

Growth since acquisition (revenue)

• 2017
  37.4 bn yen
• 2022
  65.7 bn yen

+47.2%

DuluxGroup

Company Name

DuluxGroup

Year

2019

Country / Region

Pacific

Business

Decorative paints and adjacencies business

Market share (Decorative paints)

No.1 (Australia, Papua New Guinea)

Growth since acquisition (revenue)

• 2019
  134.9 bn yen
• 2022
  206.6 bn yen

+53.2%

Betek Boya

Company Name

Betek Boya

Year

2019

Country / Region

Türkiye

Business

Decorative paints and adjacencies business

Market share (Decorative paints)

No.1

Growth since acquisition (revenue)

• 2019
  28.8 bn yen
• 2022
  70.5 bn yen

+144.7%

PT Nipsea

Company Name

PT Nipsea

Year

2021

Country / Region

Indonesia

Business

Decorative paints and Automotive coatings, etc.

Market share (Decorative paints)

No.2

Growth since acquisition (revenue)

• 2020
  30.3 bn yen
• 2022
  52.3 bn yen

+72.7%

NIPSEA Group (2014: Consolidation 2021: Full integration)

Company Name

NIPSEA Group
(2014: Consolidation
2021: Full integration)

Year

2021

Country / Region

Asian countries

Business

Decorative paints, Automotive coatings and Industrial Coatings, etc.

Market share (Decorative paints)

No.1 (China, Malaysia, Singapore, Sri Lanka)

Growth since acquisition (revenue)

• 2014
  236.5 bn yen
• 2022
  708.5 bn yen

+199.6%

Vital Technical

Company Name

Vital Technical

Year

2021

Country / Region

Malaysia

Business

Adjacencies business

Market share (Decorative paints)

-

Growth since acquisition (revenue)

-

Cromology

Company Name

Cromology

Year

2022

Country / Region

Europe

Business

Decorative paints

Market share (Decorative paints)

No.1 (italy)
No.2 (France, Portugal)

Growth since acquisition (revenue)

• 2021
  109.1 bn yen
• 2022
  117.3 bn yen

+7.6%

JUB

Company Name

JUB

Year

2022

Country / Region

Europe

Business

Decorative paints and adjacencies business

Market share (Decorative paints)

No. 1 in interior paint (Slovenia, Croatia, Bosnia and Herzegovina, Kosovo)

Growth since acquisition (revenue)

• 2021
  109.1 bn yen
• 2022
  117.3 bn yen

+7.6%

Five Chinese automotive subsidiaries

Company Name

Five Chinese
automotive
subsidiaries

Year

2022

Country / Region

China

Business

Automotive coatings

Market share (Decorative paints)

-

Growth since acquisition (revenue)

-

NPT

Company Name

NPT

Year

2023

Country / Region

Italy

Business

Adjacencies business

Market share (Decorative paints)

-

Growth since acquisition (revenue)

-

*The earnings comparison with the time of acquisition are estimates because some assumptions used to estimate market shares at the time of acquisition are different frompresent assumptions due to a change in the accounting policy.
*Market share is based on NPHD's estimates.
*FY2017 earnings of Dunn-Edwards are for 10 months from March 2017, when the acquisition closed, to December 2017. Earnings changes since the acquisition are calculated using FY2018 earnings.
*The earnings of Cromology and JUB for FY2021 results are pro forma figures. JUB’s earnings for FY2022 are pro forma figures for 12 months and converted to JPY at the following exchange rate: EUR/JPY=138.5 yen

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