RPM Inc.

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RPM Inc.

2628 Pearl Road
P.O. Box 777
Medina, Ohio 44258
U.S.A.
(216) 273-5090
Fax: (216) 273-5061

Public Company
Incorporated: 1947 as Republic Powdered Metals, Inc.
Employees: 3,000
Sales: $625.7 million
Stock Exchanges: NASDAQ
SICs: 2851 Paints & Allied Products; 5198 Paints, Varnishes & Supplies

RPM Inc. ranks among the United States’ top five paint and allied products manufacturers, with markets in over 75 countries around the world. It is one of only 19 public companies on Gene Walden’s list of the 100 Best Stocks to Own in the World, and by 1992 had raised dividends 19 consecutive times. Financial World has recognized RPM as one of the best managed companies in America, awarding it three consecutive Bronze Awards for executive leadership. Recognition was also extended to the company’s products when RPM was chosen to provide corrosion control coatings for the restoration of the Statue of Liberty in the mid-1980s.

Headquartered in the small city of Medina, Ohio, RPM has recorded over 46 consecutive years of growth in sales and earnings. It is operated as a holding company, but all its businesses focus on the specialty coatings and chemicals markets. Recent success has been based on a strategy of growth through acquisitions, which has expanded the holding company to include 38 operating companies in the United States, Canada, Holland, Belgium, and Luxembourg. These additions have led RPM activities to group their activities into five primary markets: industrial waterproofing and general maintenance; industrial corrosion control; specialty chemicals; consumer do-it-yourself; and consumer hobby and leisure. The industrial and specialty chemical markets account for 60 percent of RPM’s sales.

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 the company, then called 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. These original goals remain a high priority at RPM. In addition, financial success during Republic Powdered Metals’s 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 has long been 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’s sales had outgrown its production capabilities, and a new plant was build in Gliroy, California. That year, Tom 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 Cleveland, that year.

This infusion of capital enabled RPM to make its initial acquisition in 1966. The purchase of the Bondex Company of St. Louis, Missouri, brought RPM into the realm of consumer products with 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 hallmark 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 has also focused on companies that do not rely on Original Equipment Manufacturers (OEM). That way, RPM and its operating companies are not as sensitive to market fluctuations and economic downturns. Most of RPM’s products augment 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.

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 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. Since 1972, that “hands off approach has become 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 points, 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 non-apparel fabrics for the construction industry, had 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 was 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 recommended 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.

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.

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. Tester Corporation, a Rockford, Illinois, maker of glue and paints for hobbyists, was purchased from Jupiter Industries Inc. that same year. Founded in 1929, Testor 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—Tester’s president took all press inquiries, and few news reports mentioned Testor’s relationship to RPM.

Westfield Coatings Corp., 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 Co. 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 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. However, when RPM’s stock price fell from 17 to 10 after the “Black Monday” stock market crash on October 19, 1987, 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 non-toxic, 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.

Unfortunately, with increased investor and analyst attention came takeover speculation. Using some of RPM’s own acquisition criteria—an attractive growth record and superior leadership—some analysts hypothesized in the late 1980s that RPM was ripe for acquisition by one of the chemical industry’s giant corporations. They often emphasized RPM’s 53 percent debt-to-total capitalization ratio, which some industry analysts criticized as too high. Sullivan downplayed the threat, noting the early 1990s low interest rates and the high operating returns of RPM’s acquisitions.

The younger Sullivan’s business acumen has not only been highlighted 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 per square foot to 17 cents per square foot. As a result RPM sold off the EPDM operation, even after sinking $10 million into product development.

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 has done to RPM is to slow its growth rate. And 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 complimented 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, a 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. In June of 1993 RPM also acquired Dynatron/Bondo Corporation of Atlanta, Georgia, which manufactured and marketed products for professional and consumer use in the automotive aftermarket.

RPM’s sturdy portfolio has been carefully positioned for continued growth, and as the United States began to emerge from the economic slump of the early 1990s, RPM’s consumer products have been strong performers. In terms of industrial products, Tom Sullivan expected the corrosion control segment to experience further growth. Historically, the company has demonstrated an ability to grow during good times and bad, with one of the best records in American industry. RPM has sailed through raw materials shortages, runaway inflation, record-high interest rates, and several post-World War II recessions with much success, as evidenced by 46 consecutive years of rising earnings and sales, ranking RPM among America’s best companies.

Principal Subsidiaries

Alox Corporation; American Emulsions Co., Inc.; H. Behlen & Bro., Inc.; Bondex International, Inc.; Bondex International Ltd. (Canada); Carboline Company; Chemical Coatings, Inc.; Chemical Specialties Mfg. Corp.; Consolidated Coatings Corporation; Craft House Corporation; Day-Glo Color Corporation; Design/Craft Fabric Corporation; Dynatron/Bondo ACEuclid Chemical Co. (50%); Floquil-Polly S Color Corp.; Haartz-Mason, Inc.; Kop-Coat, Inc.; Label Systems Corp.; Mameco International, Inc.; Martin Mathys, N.V. (Belgium); Mohawk Finishing Products, Inc.; Mohawk Finishing Products Ltd. (Canada); PCI Industries, Inc.; Paramount Technical Products, Inc.; Radiant Color N.V. (Belgium); RPM/ Belgium, N.V.; RPM/France, S.A.; RPM/Luxembourg, S.A.; RPM/Netherlands, B.V.; RPM International, Inc.; RPM World Travel, Inc.; Republic Powdered Metals, Inc.; Sentry Polymers, Inc.; Talsol Corporation; Testor Corporation; Richard E. Thibaut, Inc.; Westfield Coatings Corp.; Wisconsin Protective Coatings Corp.; Wm. Zinsser & Co., Inc.