Investors’ eyes open wide when reading headlines that recently appeared in OurCrowd’s news bulletin: “Israeli tech firms raised $930 million in venture capital in the second quarter, the highest quarterly amount since 2000. This is up 38% from the amount raised in the first quarter and 109% above the year-ago quarter.”
Foreign acquisitions of Israeli firms, the vast majority in hi-tech and biomed, are also at a record pace.
But don’t overlook investing opportunities in basic industries. There is a lot of money to be made in the nuts-and-bolts, everyday life companies. Their only sin is familiarity.
For instance, take paint – a boring subject and object of bad humor and satirical put-downs: “You’re as exciting as watching paint dry.” What is red and smells like blue paint? Red paint. Paint manufacturers are laughing all the way to the bank, as are their long-term investors.
A recent report from World Paint & Coatings Industry Association documents a 5.4 percent annual growth rate for the past decade for paints and coatings. The industry accumulated a $127.3 billion sales value through 2012.
The US hosts more than 1,000 manufacturers with sales of $22b., and the 50 largest collect 80% of revenues.
Architectural paints generate about 40% of revenue purchased from independent paint and hardware stores, direct from manufacturers and home centers.
The paint business depends on increasing Main Street prosperity. People are moving again, and commercial spaces are renovating.
Industrial coatings including auto paints, furniture, wood coatings, hi-tech, marine, aircraft and aerospace, powder coatings and specialty coatings such as fire retardants generate much of the balance of industry revenue. Additives and polishes, tools and equipment add to revenue generation and healthy margins.
The top paint companies practice globalization religiously.
M&A is fast and furious in the industry. Israel’s Azrieli Group recently sold Tambour to Singapore’s Kusto Group for $144m. From 1993 to 2001, and again from 2005 to 2012, Tambour was listed on the Tel Aviv Stock Exchange. It employed nearly 700 people and maintained a virtual monopoly on paints, sealants, industrial coatings, solvents and gypsum in Israel.
PPG Industries owns Dulux (Glidden), which it bought from Netherlands-based Akzo Nobel. California Products Corp. is buying Muralo/Graham Paint. Berkshire Hathaway owns Benjamin Moore. Nippon Paint is buying a 39% stake in a German automotive paint company.
Growth markets are China, India and Indonesia.
Asia Pacific accounts for 48% of the output in tons and 38% of the output value in dollars. Environmental regulations are less problematic. VOC (volatile organic compounds) compliance through new technology such as eco-friendly waterborne coatings made with nanotechnology is standard. The industry was nearly derailed for using toxic substances such as lead and mercury. A strong R&D program salvaged the industry and is driving expansion.
Dr. Seuss did a lot for paint with his bold and bright colors captivating children as they read his stories. Take a look at paint companies for investing like three brown bears and one red in between, “Why fit in, when you were born to stand out?”
Dr. Harold Goldmeier is the managing partner of Goldmeier Investments LLC and an instructor of business and social policy at the American Jewish University, Aardvark Israel Gap Year Program, Tel Aviv.