RPM, Inc.

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RPM, Inc.

2628 Pearl Road
P.O. Box 777
Medina, Ohio 44258
U.S.A.
Telephone: (330) 273-5090
Fax: (330) 225-8743
Web site: http://www.rpminc.com

Public Company
Incorporated: 1947 as Republic Powdered Metals, Inc.
Employees: 6,800
Sales: $1.95 billion (2000)
Stock Exchanges: New York
Ticker Symbol: RPM
NAIC: 325510 Paint and Coating Manufacturing; 325520 Adhesive Manufacturing

RPM, Inc. is one of the world’s leading manufacturers of paints and coatings used for maintenance and protection. About 60 percent of sales are generated from the company’s industrial division, which makes waterproofing, corrosion control, floor maintenance, and other products under such brands as Alumanation, Day-Glo, Carboline, Mathys, and Tremco. The remainder of sales come from the consumer division, which produces do-it-yourself products for home improvement, automotive repair, marine, and hobby and leisure applications through such brands as Rust-Oleum, Bondex, Bondo, DAP, Wolman, and Zinsser. From its founding through 1999, RPM enjoyed a remarkable 52 consecutive years of increasing sales and earnings; the profit string was broken in 2000, however, although the sales streak remained alive.

Growing Steadily in the Early Years

RPM founder Frank C. Sullivan had built a successful career as a sales executive with a Cleveland paint manufacturer, but decided to move out on his own in 1947. He started Republic Powdered Metals, Inc. in 1947 in a garage on Cleveland’s west side with a $20,000 investment. The company manufactured a single product called Alumanation. This heavy-duty protective coating has endured as one of RPM’s biggest sellers.

Sullivan’s original goal was to create and sell industrial maintenance products—to waterproof, rustproof, and protect existing structures. In order to carry out that goal, he concentrated on attracting talented workers, then provided them with a constructive atmosphere in which to develop their abilities. In addition, financial success during Republic Powdered Metals’ first ten years was driven by a management team whose members would spend their entire business lives working at RPM. As late as 1987, eight of the ten men were still active in the management of the company. RPM’s leadership was long lauded as one of the most successful and experienced in the coatings industry.

In its first year Republic Powdered Metals achieved $100,000 in revenues, and by 1957 the company had reached the $2 million mark. By 1961 Republic Powdered Metals’ sales had outgrown its production capabilities, and a new plant was built in Gilroy, California. That year, Thomas C. Sullivan joined his father’s company, advancing to executive vice-president in 1965.

As domestic sales grew year after year, RPM turned its attention to the international marketplace. Success in that arena came quickly, and the effort was rewarded with increasing profits and President Lyndon Johnson’s “E” Award for excellence in export expansion in 1964. That year was a turning point for RPM. Frank Sullivan and his management team realized that, to continue to grow and prosper, they had to choose between selling out or going public. In 1964 they chose to go public, and offered 1,000 shares of stock at eight dollars per share, but purchasers were limited to Ohioans until the first national stock offering in 1969. RPM’s headquarters were moved to Medina, a small community 25 miles south of Cleve-land, that year.

This infusion of capital enabled RPM to make its initial acquisition in 1966. The purchase of the Reardon Company of St. Louis, Missouri, brought RPM into the realm of consumer products with Reardon’s well-known brand name, Bondex, the only nationwide line of household patch and repair products. That first purchase also established many of the criteria for RPM’s future acquisitions. The company sought to purchase low-volume, high-margin niche companies that were performing well—as Tom Sullivan pronounced in the Cleveland Enterprise in 1992, “We don’t do turnarounds.” Each product was expected to match RPM’s gross profits of 40 percent. A hall-mark of the Sullivans’ system was that a prospective acquisition have an enthusiastic management team in place, since those leaders would continue the administration that had drawn RPM’s attention in the first place. RPM also focused on companies that did not rely on original equipment manufacturers (OEM). That way, RPM and its operating companies were not as sensitive to market fluctuations and economic downturns. Most of RPM’s products augmented existing equipment and industrial facilities, avoiding the cyclical nature of companies that rely on new construction or sales of capital goods. Finally, RPM looked for “synergism” with its existing product lines, encouraging the leaders of each operating company to find products or technologies that might compliment the products of their colleagues.

New Leadership and Holding Company in the 1970s

RPM’s success was tragically disrupted in 1971 with the unexpected death of Frank C. Sullivan on August 18. The shock precipitated a crisis situation: according to Frank’s son and successor, Tom, the elder Sullivan had been “the individual most closely identified with [RPM].” As the new chairman, president, and chief executive officer, Tom feared that the company would lose its credibility along with its leader.

To fend off such speculation RPM, Inc. was incorporated as a holding company under which Republic Powdered Metals, Bondex, and any new acquisitions would operate as wholly owned subsidiaries with a large degree of independence in their daily operations. That “hands-off” approach became a model for all RPM’s acquisitions and a strategy envied by other large corporations. Jerry J. Dombick, an industry analyst, praised RPM’s “mutual fund of businesses” in a 1993 Chemical Week article.

During the years from 1968 to 1977, RPM’s sales grew from $7 million to $57 million annually, but the ten-year period was, in the words of the 1987 annual report, “a real test for the RPM management team.” The challenge came from outside the company; between 1972 and 1974 the Dow Jones Industrial Average lost almost half of its value. RPM’s stock dropped from a high of $23 to $8 per share, in spite of continuously growing sales and earnings.

Despite that brief, but dramatic, downturn, RPM acquired a dozen companies over the course of the 1970s, including Maharam Fabric—later renamed Design/Craft Fabrics—Proko Industries Inc., and Thibaut Wallcoverings. In 1977, RPM purchased all of Alox Corp.’s stock, thereby acquiring that producer of rust corrosion inhibitors and adding Alox’s $5 million annual sales to the balance sheet. The purchase of Maharam Fabric, a Chicago designer and distributor of decorative nonapparel fabrics for the construction industry, added another $10 million in sales to RPM’s bottom line.

Later in 1977 RPM announced an offering of 860,000 common shares, which helped to finance the decade’s many acquisitions. The stock was issued in November, and sold out the same day. Before the decade was out, RPM acquired Dean & Barry Co., a 77-year-old Columbus-based manufacturer of paints and protective coatings. Before the 1970s’ flurry of acquisitions ended, Mohawk products, a well-known brand in the furniture touch-up industry, and Mameco International, a Cleveland manufacturer of urethane sealants, flooring systems, and coatings, were also added. Founded in 1913, Mameco brought sales of $10 million annually to the growing list of RPM subsidiaries.

With all of the acquisitions came increased responsibilities, and in 1978 Tom Sullivan and the board of directors decided to divide his leadership role into two positions: president/chief operating officer and chairman/chief executive. Sullivan recom-mended his longtime associate and executive vice-president, James A. Karman, for the president’s position. The two met at Miami (of Ohio) University and worked together for 16 years before the formation of the holding company. From that point forward, Karman oversaw RPM’s daily operations, while Sullivan concentrated on acquisitions and public relations.

In the 1970s and 1980s RPM’s exports grew, complemented by overseas licensees and joint ventures that accounted for $50 million in annual sales by 1987. From 1976 to 1985, the company’s sales compounded 330 percent, fueled primarily by astute acquisitions. At that time 80 percent of RPM’s products fell into the industrial category, while the balance was consumer-oriented. Between 1978 and 1987, RPM divested $50 million in weaker margin operations, and sales grew from $57 million to $300 million. During this period, RPM added several consumer-oriented subsidiaries, and its operating companies concentrated on the development of consumer products in several categories: household, automotive aftermarket, and hobby and leisure.

Continuing to Grow Through Acquisitions in the 1980s

In mid-1983 RPM ventured into the Eurobond markets to finance numerous acquisitions during the decade. “Eurobond designates securities sold in countries that do not utilize the currency of the bond’s denomination. They were attractive to RPM and many other large corporations for several reasons: better rates; less expensive legal, printing, and underwriting costs; and more favorable terms.

Company Perspectives

RPM, Inc. is a world leader in specialty coatings, serving both industry and consumers with products that often command the number one position in the marketplaces they serve.

In 1980 RPM purchased all assets of Haartz-Mason Inc., a Boston manufacturer of synthetic rubber products, which added sales of about $8 million per year to the list. Euclid Chemical Co., a 1984 acquisition, brought a leading manufacturer of liquid and powder concrete additives into RPM’s product lineup. Founded in 1910, Euclid Chemical had about 40 employees and estimated sales of $12 million in 1984. Testor Corporation, a Rockford, Illinois, maker of glue and paints for hobbyists, was purchased from Jupiter Industries Inc. that same year. Founded in 1929, Tester was the world’s best-known hobby and craft trademark. The company earned national attention in the mid-1980s when it released a 12-inch plastic replica of the top secret F-19 Stealth fighter jet. Aside from the free publicity, the incident helped to illustrate the high degree of autonomy and responsibility enjoyed by the presidents of RPM’s operating companies—Testor’s president took all press inquiries, and few news reports mentioned Testor’s relationship to RPM.

Westfield Coatings Corp., a manufacturer of specialized high-performance coatings for the paper, wood, and metals industries, was purchased in January 1985. A stock offer of 700,000 shares at $15.50 each was made in connection with the Westfield acquisition. Later that year, RPM acquired Carboline Company from Sun Co. Inc., which put the company at the forefront of specialized corrosion-control products. As RPM’s largest acquisition, Carboline expanded RPM’s product lines to include specially formulated corrosion-control products used to maintain nuclear reactors. The St. Louis company was one of only a few manufacturers in this exclusive industry, a key factor in its acquisition by RPM. Other Carboline products for the energy, chemical, paper and pulp, and highway industries were manufactured at factories in Ohio, Louisiana, California, and Wisconsin.

RPM returned to the Eurobond market in 1986 for $30 million at just 5.75 percent. The sale helped finance capital investments in manufacturing facilities worldwide and the continued high rate of acquisitions throughout the 1980s. That same year RPM acquired American Emulsions Co. of Dalton, Georgia, a manufacturer of specialty coatings and chemicals for the textile, carpet, and paper industries with annual sales of $10 million. The 1987 addition of William Zinsser & Co. of Somerset, New Jersey, brought more consumer items to RPM’s roster of products. The company was the leading U.S. manufacturer of primer-sealers, shellac finishes, and special wallcoverings for the professional and do-it-yourself markets, and its brand of edible glazes for candy and pharmaceutical applications was the leading one in those fields. Craft House Corp., a maker of craft, hobby, and toy products with $20 million in annual sales, further expanded RPM’s do-it-yourself business in 1987. Chemical Specialties Manufacturing Corp., Baltimore, was a producer of coatings, cleaners, and additives for the carpet, textile, and floor care market that was added in 1988.

National interest in RPM developed in the mid-1980s. The company had been ranked among Dun’s Business Month’s top five “dividend achievers” for 1983 through 1986 and cited as one of Fortune’s ten fastest-growing dividends. But despite this recognition, many institutional investors remained largely unaware of RPM’s achievements. When RPM’s stock price fell from $17 to $10 after the “Black Monday” stock market crash on October 19, 1987, however, analysts noted that the bulk of RPM’s 14,000 individual shareholders kept buying, while other individual investors were scared off. Due to this loyalty the stock was able to recover within the same year.

One reason for the neutralization of the crash was related to the U.S. government’s national public health advisory regarding the carcinogen radon. On September 12, 1988, the federal government advised all homeowners and renters nationwide to test for radon gas. Later that fall, RPM became one of the first companies to announce the development of a radon barrier system. The Bondex Radon Blocking System, a nontoxic, water-based sealant designed to protect homes and other buildings from radon gas seepage, was produced by Bondex International in 1989. RPM’s stock took its sharpest jump in history after the disclosure concerning the five-step radon sealant.

The younger Sullivan’s business acumen was not only high-lighted by acquisitions, but by divestments as well, especially since 1983. During the ten-year period ending in 1993, RPM sold off businesses accounting for $100 million in sales. Such divestments usually followed a product’s move from a niche market to a commodity. For example, when Firestone entered the ethylene propylene diene monomer (EPDM) roofing membrane market in the early 1980s, prices plunged over 75 percent, from 70 cents to 17 cents per square foot. As a result RPM sold off the EPDM operation, even after sinking $10 million into product development.

Key Dates

1947:: Frank C. Sullivan founds Republic Powdered Metals, Inc.
1963:: Company goes public through an offering limited to residents of Ohio.
1966:: Company makes first acquisition, Reardon Company and its Bondex brand.
1969:: First national public offering of the company’s stock occurs.
1971:: Thomas C. Sullivan takes over for his father, who had died unexpectedly. Firm becomes a holding company under the new name RPM, Inc.
1978:: James A. Karman is named president.
1985:: Carboline Company is acquired.
1987:: William Zinsser & Co. is acquired.
1993:: Company acquires Dynatron/Bondo Corporation and Stonhard Inc.
1994:: Rust-Oleum Corporation is acquired.
1997:: Tremco, Inc. is purchased from BFGoodrich Company.
1998:: Flecto Company, Inc. is acquired.
1999:: DAP Products Inc. and DAP Canada Corp. are acquired; company launches a major restructuring.

Expanding into a $2 Billion Company in the 1990s

The recession of the early 1990s did not slow RPM’s acquisition or earnings pace. While the economic downturn made many of the 1980s’ winners into losers, the worst it did to RPM was to slow its growth rate. Moreover, it was during this time that RPM made its first venture into the high-quality marine paint market with its second largest acquisition. Kop-Coat, Inc., of Pittsburgh, had a diverse line of coatings products under the Wolman, Pettit, Woolsey, and Z-Spar brand names and $55 million in annual sales.

RPM also entered into a joint venture in 1990 with Holderbank Franciere Claris S.A. of Switzerland, one of the world’s largest producers of cement. The arrangement involved the sale of 50 percent of Euclid Chemical Co. to Holderbank’s special materials division, Holderchem. The following year saw the expansion of RPM’s European influence with the purchase of Rust-Oleum’s Netherlands and French operations. The activities complemented RPM’s previous forays into Belgium and Luxembourg and gave the company increased access to the world’s markets.

In 1991 RPM became the dominant player in fluorescent colorant markets with the purchase of Cleveland’s Day-Glo Color Corp. The increased popularity of fluorescent colors in the 1990s saw them applied to plastics, textiles, paints, and inks. Day-Glo constituted about 40 percent of that growing industry. Later that year, RPM acquired Martin Mathys N.V., a Belgian manufacturer of specialty protective coatings for the building maintenance and construction industry. Martin Mathys was founded in 1845, and had distribution throughout the European marketplace by the time it joined RPM’s roster.

As the recession gave way to the sustained economic expansion of the mid- to late 1990s, RPM stepped up its acquisition activity. In June 1993 RPM acquired Dynatron/Bondo Corporation of Atlanta, Georgia, which manufactured and marketed products for professional and consumer use in the automotive aftermarket and had annual sales of $45 million. Later that year the company made its largest acquisition yet, that of Stonhard Inc., which boasted sales of $100 million in a new market for RPM—industrial flooring products, including applications for corrosion control and waterproofing. A still larger purchase came in mid-1994 in the culmination of a 15-year courtship of Rust-Oleum Corporation. Having acquired the company’s European operations in 1991, RPM was finally able to take over Rust-Oleum itself, its well-known brand name, and its $140 million in sales of protective paints and coatings. The RustOleum acquisition—a $178 million purchase—along with that of hobby paint maker Skilcraft, helped propel RPM’s sales past $1 billion for the first time in fiscal 1995. Net income for the year was $61.1 million, more than double the 1990 figure of $27.7 million.

In September 1995 RPM paid $110 million for Providence, Rhode Island-based Dryvit Systems, Inc., maker of exterior insulation finishing systems used in the construction and renovation of homes and commercial buildings. Dryvit had annual sales of about $75 million. As part of a drive to increase international sales, RPM in early 1996 established, through Dryvit, a manufacturing operation in Poland where Dryvit and other RPM products would be produced for sale in eastern and central Europe and in Russia. This and other overseas moves helped increase international sales from $200 million in 1996 (18 percent of overall sales) to $300 million in 1997 (22 percent).

The next major acquisition—and once again the biggest yet—came in February 1997 when RPM purchased Tremco, Inc. from BFGoodrich Company for $236 million in cash. The Tremco business sought by RPM was its roofing systems, sealants, and coatings unit that mainly served the building maintenance sector. Having taken on long-term debt to finance the Tremco acquisition, RPM later in 1997 reduced its debt load by selling off two noncore Tremco units—an insulating glass business and an auto glass operation, both of which served the original equipment manufacturer market—as well as Craft House, whose line of retail craft products was no longer considered a core area. The purchase of Tremco also led to the merging of two related RPM subsidiaries into the newly acquired firm—Mameco International and the founding RPM firm, Republic Powdered Metals. Meanwhile, in October 1997 RPM and its shareholders celebrated 50 consecutive years of sales and earnings gains at an annual meeting that featured a private concert by the Cleveland Orchestra.

RPM made several acquisitions in 1998 and 1999; these were all on the small side with the exception of two. In March 1998 the company acquired Flecto Company, Inc., the number two North American maker of interior wood stains and finishes through its Varathane and Watco brands. Then in early August 1999 RPM bolstered its do-it-yourself lines with the $290 million cash purchase of DAP Products Inc. and DAP Canada Corp. DAP was the leading maker of caulks, sealants, spackling compounds, and adhesives, selling $250 million in product each year under such brands as DAP, Kwik-Seal, and Durabond.

Within days of completing the DAP acquisition, RPM announced that it would undertake the first major restructuring in its history. Precipitating this initiative was a slackening of sales growth in North America, coupled with the continued downturn in certain overseas markets, most notably in Asia and South America, as well as an increase in service and distribution expenses. The restructuring involved the closing of 23 manufac-turing, administrative, and distribution facilities; the elimination of 730 positions from the workforce; and a consolidation of product line distribution and warehousing. Perhaps the most dramatic change was the grouping of operating companies into product-line-centered groups, each of which was responsible for several brands. This had already been successfully carried out with the establishment of the Tremco Group and the merging of Mameco and Republic Powdered Metals into it. Tremco was one of three product line groups within the industrial division, which also included the StonCor Group, which combined Stonhard, Carboline, Plasite Protective Coatings, and Fibergrate Composite Structures, and which concentrated on corrosion protection and polymer technology; and RPM II Group, which was a sort of catch-all grouping that included the remaining industrial product lines and that would specialize in evaluating and acquiring small entrepreneurial companies. RPM’s consumer division included three new groups: the Wood Finishes Group, which included Flecto and other wood finishing lines; the Bondo/Pettit, Woolsey/Z-Spar Group, which concentrated on the marine and automotive aftermarket; and the DAP/Bondex Group, which amalgamated the company’s household patch and repair products. Other consumer groups included Rust-Oleum, Zinsser, and Testor.

Coincident with the restructuring were a host of management changes, highlighted by the formation of an office of the chairman consisting of Tom Sullivan, chairman and CEO, and Karman, vice-chairman; and the promotion of Sullivan’s son, Frank C., to president. RPM also planned to divest within two years several noncore businesses whose combined annual sales were $100 million. The company took a $52 million restructuring charge during the 2000 fiscal year, which brought an end to the streak of consecutive years of increasing net income, at 52 years. Profits fell 57 percent, from $94.5 million in 1999 to $41 million in 2000. Sales, however, increased for the 53rd straight year, rising 14 percent, to almost $2 billion. Despite the profit setback, RPM had posted a remarkable record in the 1990s, with sales increasing more than fourfold from the $444.8 million figure of 1990.

Principal Subsidiaries

American Emulsions Co., Inc.; Bondo Corporation; Carboline Company; Chemical Coatings, Inc.; Chemical Specialties Manufacturing Corporation; DAP, Inc.; Day-Glo Color Corporation; Dryvit Systems, Inc.; Euclid Chemical Company; Fibergrate Composite Structures, Inc.; Flecto Company, Inc.; Guardian Products, Inc.; H. Behlen & Bro., Inc.; Mantrose Bradshaw Zinsser Group; Martin Mathys N.V. (Belgium); Mo-hawk Finishing Products of Canada; Mohawk Finishing Products, Inc.; Plasite Protective Coatings, Inc.; Radiant Color N.V. (Belgium); RPM Asia Pte. Ltd. (Singapore); RPM/Belgium, N.V.; Rust-Oleum Corporation; Rust-Oleum France S.A.; RustOleum Netherlands B.V.; Star Specialty Coatings; StonCor Group; Stonhard, Inc.; TCI, Inc.; Testor Corporation; Tremco Inc.; Tremco Retail Products of Canada; Westfield Coatings Corporation; William Zinsser & Co.; Wolman Consumer Products; Wood Finishes Group.

Principal Divisions

Industrial Division (including the Tremco Group, the StonCor Group, and RPM II Group); Consumer Division (including the Rust-Oleum Group; the Zinsser Group; the Wood Finishes Group; the Bondo/Pettit, Woolsey/Z-Spar Group; the DAP/ Bondex Group; and the Testor Hobby and Leisure Group).

Principal Competitors

Akzo Nobel N.V.; BASF AG; Benjamin Moore & Co.; Dainippon Ink & Chemicals, Incorporated; E.I. du Pont de Nemours and Company; Ferro Corporation; H.B. Fuller Company; Henkel KGaA; Imperial Chemical Industries PLC; Lawter International, Inc.; Lilly Industries, Inc.; Minnesota Mining and Manufacturing Company; NL Industries, Inc.; PPG Industries, Inc.; Rohm and Haas Company; Sherwin-Williams Company; The Valspar Corporation; WD-40 Company.