Public Subsidiary of Lacy Diversified Industries, Ltd.
Sales: $130.2 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: FMST
SICs: 5198 Paints, Varnishes, & Supplies
FinishMaster, Inc. has grown from a single outlet in Michigan in 1968 to become the leading automotive paint distributor in the United States. As of December 31, 1997, it owned 143 outlets in 22 states and had sales of $130.2 million. For all but its first five years, the company was a subsidiary of a parent company that provided financing for expansion through acquisitions. From 1973 to 1996, it was a subsidiary of Maxco, Inc., a diversified holding company based in Lansing, Michigan. In 1996 it was acquired by Lacy Diversified Industries, Ltd. of Indianapolis, Indiana. By the end of 1997 FinishMaster had acquired its largest competitor to become the industry leader in automotive paint distribution.
Founded in 1968 by James White
FinishMaster was founded by James White in 1968 with a single outlet in Grand Rapids, Michigan. He ran the business independently until 1973. It served as an intermediary between automotive paint manufacturers and body shops that repaired cars, including automobile dealerships. “From the outset, my idea was to start a paint business and follow the lines of automotive parts divisions, like NAPA has,” White told the Grand Rapids Business Journal.
In 1973 White sold the company to Maxco, Inc., which was based in Lansing, Michigan, to finance its growth. FinishMaster became a wholly owned subsidiary of Maxco, Inc. Maxco allowed White to remain as president and acted as a silent partner. White told the Grand Rapids Business Journal, “They allowed me to build it the way I wanted and provided the financing.” In 1975 White began acquiring stores, spreading throughout Michigan and eventually into Chicago and Indiana.
Opened New Corporate Headquarters, 1990
In 1990 FinishMaster moved from its headquarters in Wyoming, Michigan, to new facilities in Kentwood, Michigan. The company owned and operated 15 stores in Michigan and Illinois. It leased its former headquarters, but now it would own its new facility, a 40,000-square-foot building with 8,000 square feet of office space on four acres.
The new distribution facility and corporate headquarters in Kentwood was a sign of the company’s growth and expansion. It planned to open two new stores per year over the next five years. Three stores were opened in the Chicago area in 1989 and 1990. When looking for new outlets to acquire, the company would typically survey markets within a 250- to 300-mile radius of its warehouse. Its customers were primarily body shops and automobile dealerships.
Acquired Master Glass & Color in Indianapolis, 1993
In February 1993 FinishMaster announced it would acquire certain assets related to the refinishing business of Master Glass & Color in Indianapolis. Max A. Coon, chairman of Maxco, Inc., the parent company of FinishMaster, said, “The Indianapolis location fits into our plan of expanding the company’s domination of the Great Lakes area within a radius of the Grand Rapids, Michigan, distribution facility. About 40 percent of FinishMaster’s sales volume now comes from Wisconsin, Illinois, and Indiana, markets we entered beginning in late 1989.”
Coon noted that FinishMaster had long dominated the Michigan market. Expansion into other geographic markets was accomplished through the acquisition of existing locations. These acquisitions were backed up by “FinishMaster’s purchasing power, the strong management organization, and emphasis on service and training,” said Coon.
FinishMaster’s strategy was to consolidate within the Great Lakes region. According to Coon, “Auto paint distribution is a fragmented industry.” Master Glass & Color was one of the largest auto paint jobbers in Indianapolis, so FinishMaster was entering the market in a strong position.
Maxco was a diversified holding company that owned several distribution and manufacturing businesses. Its construction supplies group, consisting of Ersco and Wisconsin Wire and Steel, marketed commercial and highway construction materials. Its manufacturing businesses were Wright Plastics, Pak Sak Industries, and Akemi.
Reported Record Sales and Earnings for 1994 and 1995
For FinishMaster’s fiscal year 1994 (ending March 31), the company reported earnings of $2.1 million on net sales of $64.7 million, up from earnings of $1.4 million on net sales of $50.6 million in 1993. Two new outlets acquired in March and April 1993 accounted for $7.6 million of the increase, with the remainder coming from sales growth from existing outlets.
For 1995, FinishMaster again reported record sales and earnings levels. The company had net income of $3.5 million on sales of $79.4 million. The regional expansion strategy was paying off. The company enjoyed double-digit growth among its existing outlets in Indiana, Illinois, and Wisconsin. Within Michigan, outlet sales increased by about five percent. Overall, same outlet sales increased by 10.9 percent for the year.
During 1995, FinishMaster expanded into Ohio with acquisitions in two of the largest markets in that state. The company also established a new Southwest region with the acquisition of seven outlets in the Dallas-Fort Worth area of Texas. A total of five acquisitions were completed during the year, accounting for a sales volume of $18 million. On April 1, 1995, the company completed the acquisition of another Texas distributor with annual sales of $5 million.
FinishMaster Went Public in February 1995
FinishMaster became a publicly owned company when it floated its initial public offering (IPO) on February 14, 1995. The IPO sold 1.7 million shares of common stock at $10.50 per share, generating net proceeds of $16.6 million to the company. The funds enabled FinishMaster to build two new stores and to grow from a regional company to a national one with acquisitions in the East and Southwest.
At the time of the IPO there were 46 FinishMaster outlets in operation. In the following six months, FinishMaster acquired nine additional outlets. Bob Johnson, FinishMaster’s marketing manager, told the Grand Rapids Business Journal, “There are a lot of different competitors in different market areas, but there isn’t one force in all the markets that we are in.” He noted that a West Coast company, Thompson PBE, “does the same type of business, but geographically we have not run into each other yet.”
FinishMaster Acquired by Lacy Diversified Industries, 1996
In July 1996 FinishMaster was acquired by Lacy Diversified Industries, Ltd. (LDI), a privately held holding company based in Indianapolis. LDI purchased Maxco’s 67 percent stake in FinishMaster for $63 million. Just a few weeks earlier, LDI had acquired Florida-based Steego Auto Paints, an automotive paint distributor with annual sales of $12 million. The two acquisitions vaulted LDI into a leadership position in the automotive paint distribution business. Its main competitor was Thompson PBE Inc., a California-based firm that was the only other public company in the industry. The rest of the industry consisted primarily of smaller, privately owned companies. Thompson PBE reported annual sales of $132 million in 1995. At the time of the acquisition, FinishMaster owned and operated 56 stores in 12 states.
Ronald White, son of company founder James White, resigned as FinishMaster’s president, and Thomas Young was appointed by the new board of directors to the position of president and chief operating officer (COO). Andre B. Lacy became FinishMaster’s new chairman and CEO. Lacy was also chairman, president, and CEO of LDI Management Inc.
Financially, 1996 was a difficult year for FinishMaster. After changing the end of its fiscal year to December 31, the company reported net income of $662,000 on net sales of $125.8 million for the year ending December 31, 1996. Sales were flat in the industry for several reasons, including fewer OEM (original equipment manufacturer) paint warranty issues, fewer repairable accidents, and more efficient products and equipment. In addition, FinishMaster experienced more intense competition from the increased sales and marketing efforts by overseas paint companies.
FinishMaster, Inc. is one of the nation’s leading distributors of automotive paints, coatings and related accessories to automotive dealerships, body shops, van convenors and fleet operators. FinishMaster offers its customers a comprehensive selection of more than 9,000 brand-name refinishing products from leading manufacturers such as BASF, DuPont, PPG and 3M. FinishMaster’s strategic locations, combined with a fleet of delivery trucks and comprehensive product offerings, allow for rapid delivery of products to approximately 12,000 customers. Additionally, FinishMaster provides customers vith a variety of value-added services such as technical training, computerized color-matching, strategic planning and profitability consulting.
Acquired Its Main Competitor, Thompson PBE Inc., in November 1997
In a move to achieve an even stronger leadership position in the automotive paint distribution business, FinishMaster announced it would acquire and merge with its primary competitor, Thompson PBE Inc., in October 1997. Through a tender offer that was completed in November, FinishMaster acquired 97.9 percent of the outstanding shares of Thompson PBE for $8 per share. The tender price represented a 73 percent premium over Thompson’s current stock price and was equal to Thompson’s 52-week high closing price. Although Thompson was experiencing sales growth, its stock had fallen from $19.50 per share in June 1995 to $2.75 in April 1997 before rebounding to $7 per share. The overall cost of the acquisition to FinishMaster was $73.4 million, including acquisition costs, plus the refinancing of some $34.5 million of Thompson’s outstanding indebtedness.
Together, the two companies would own 143 distribution outlets in 22 states. Combined revenues were projected to be $320 million for 1998. There was minimal geographic overlap between the two companies, making the new merged company truly national in scope. As a result, little restructuring was expected following the merger.
Once the merger was completed, FinishMaster would begin competing head on with some 4,000 small firms in the industry. Lacy told the Indianapolis Business Journal, “That battle will be fought customer by customer. Being big isn’t important. We’ve got to appear to our customers as the enterprise that gives the greatest value at the lowest cost. There are some very good small companies out there who have longstanding personal relationships with their customers and do very well.”
For 1997, FinishMaster reported flat net income of $656,000 on slightly higher sales of $130.2 million. Only one month of Thompson’s sales contributed to FinishMaster’s results for the year, which offset soft same-outlet sales for the company. The company’s volume purchasing strategies, however, helped to increase its gross profit as a percentage of sales.
Reorganization, New Corporate Headquarters Positioned FinishMaster for Future Growth
FinishMaster was now organized into four regional divisions. The Midwest Division included Michigan and northern Indiana. The Central Division covered Wisconsin, Illinois, southern Indiana, and Ohio. The Southwest Division consisted of Texas and Oklahoma. The Eastern Division took in outlets in Pennsylvania, New Jersey, Maryland, and Virginia. Each regional division was headed by a vice-president, general manager. The new regional organization of the company was designed to rebuild the localized nature of the sales outlets and provide for greater accountability. As company management noted in its annual report, “In our business, market share is won or lost at the local level by providing top-notch service and building relationships with customers at body shops and dealerships.”
As of March 1, 1998, FinishMaster relocated its corporate headquarters to newly renovated office space in Indianapolis. It was felt that Indianapolis represented a major metropolitan city and was more central to the company’s national distribution strategies. The Kentwood location remained a divisional office and distribution facility.
Continuing to expand its outlets through acquisitions, FinishMaster announced in February 1998 that it would acquire LDI AutoPaints, Inc., in consideration for the issuance of approximately 1.5 million additional shares of common stock. LDI AutoPaints had 16 distribution outlets in Florida and was owned by Lacy Diversified. The all-stock transaction would increase Lacy Diversified’s ownership of FinishMaster from 67 percent to approximately 75 percent. The transaction would be presented to FinishMaster’s shareholders for approval at the company’s 1998 annual meeting.
Midwest Division; Southwest Division; Central Division; Eastern Division.
Coon, Max, “Maxco’s FinishMaster, Inc. Announces Acquisition, Expands Midwest Operations,” PR Newswire, February 3, 1993.
“FinishMaster Agrees to Acquire Florida Distributor LDI AutoPaints,” Business Wire, February 20, 1998.
“FinishMaster Announces Year-End 1997 Results,” Business Wire, April 2, 1998.
“FinishMaster, Inc. Accepts 97.9% of Thompson PBE, Inc. Shares in Tender Offer,” Business Wire, November 19, 1997.
“FinishMaster Reports First-Quarter Results,” Business Wire, April 27, 1998.
Lacy, Andre B., “Thomas Young Named President and COO of FinishMaster,” Business Wire, July 25, 1996.
Luymes, Robin, “FinishMaster Is Showing Growth,” Grand Rapids Business Journal, July 2, 1990, p. 5.
Pletz, John, “Buyout May Make LDI a $1 Billion Company,” Indianapolis Business Journal, October 20, 1997, p. 4.
Schneider, A. J., “Buying Binge Lifts LDI,” Indianapolis Business Journal, June 10, 1996, p. 1.
VanderVeen, Don, “Flourishing Company Forges New Frontier,” Grand Rapids Business Journal, September 11, 1995, p. 11.
White, Ronald P., “FinishMaster Reports Record Earnings for Year,” Business Wire, May 2, 1994.
_____, “FinishMaster Reports Results for Fourth Quarter and Record Sales and Earnings for Fiscal Year Ended March 31, 1995,” Business Wire, May 3, 1995.
Young, Thomas, “FinishMaster to Acquire Thompson PBE for $8.00 per Share in Cash Tender Offer,” Business Wire, October 15, 1997.