Grow Group, Inc.
Grow Group, Inc.
Sales: $400 million
Stock Exchanges: New York
SICs: 2842 Polishes & Sanitation Goods; 2851 Paints &
Allied Products; 2891 Adhesives & Sealants
Grow Group Inc. is a leading manufacturer of architectural paints, high-performance specialty coatings, detergents, and cleaning/maintenance products for household, professional, industrial, institutional, and governmental use. Grow’s operations are divided into two groups: coatings and chemicals, and consumer and professional products. The company’s financial strength has been enhanced by its more than three dozen acquisitions since the 1970s.
Grow was founded in 1950 as a small, independent telecommunications company. The venture gained a moderate level of success during the 1950s and early 1960s, reaching sales of about $1.5 million in 1961. In 1961, Grow hired 42-year-old Russell Banks to help increase the company’s fortunes. Banks used his many talents as experimenter, entrepreneur, manager, and deal maker to eventually turn the company into a major supplier of industrial coatings and maintenance supplies. Banks’s leadership was not without problems, however. Banks’s experimenting with new inventions had taken the company to the brink of insolvency before he turned its fortunes around.
A string of acquisitions during the 1960s and 1970s made Grow Chemical Corp., as it was formerly named, a major U.S. distributor of industrial coatings and chemicals by the mid-1970s. And Banks’s knack for buying undervalued companies and turning them into performers earned him a reputation as a savvy deal maker and shrewd negotiator. Banks’s most acclaimed deal during the 1970s was his acquisition of two paint companies from Celanese Corp. in 1976. The two divisions combined were two-thirds the size of Grow (by sales volume), and Grow was short on capital. Analysts doubted that Banks would be able to pull off the exchange. Nevertheless, he leveraged the full amount, a feat lauded on Wall Street.
Although the Grow organization dates back only to the mid-1900s, the 1976 acquisitions demonstrate how the company’s historical roots reach back much further through its different holdings. In fact, one of the divisions that Grow purchased from Celanese was Devoe & Raynolds Co. Devoe is America’s oldest maker of paint and remained Grow’s chief subsidiary into the mid-1990s. Devoe was started in 1754 by William Post, who opened a paint shop in New York City. The company prospered during the 1800s and 1900s by becoming a leading innovator and supplier in the industrial and commercial coatings industry. Like Grow, Devoe expanded through acquisition and merger. In 1928 and 1938, for instance, Devoe absorbed the varnish divisions of Peaslee-Gaulbert Co. and lacquer operations of Jones-Dabney Co.
Devoe is recognized for its advanced research and development efforts. Among the company’s most notable inventions, in fact, is epoxy resin. Introduced in 1945, that discovery is credited as one of the most significant breakthroughs in coating technology during the twentieth century. “Epoxy resin is the backbone of all high-performance resins, giving them durability, hardness and adhesion,” explained Gary Miller, Devoe & Raynolds president, in the Courier Journal. “Before epoxy resin, the coatings on chemical plants may have lasted a matter of months. After epoxy resin, the job lasted a matter of years.” Devoe was bought by Celanese in 1964 before Grow acquired it in 1976. In the early 1990s Devoe & Raynolds and its sister company, Devoe Coatings, were supplying about 60 percent of Grow’s total revenues.
Less than one year after finishing the leveraged buyout of Devoe, Banks conducted another coup that earned him praise on Wall Street. Grow was in deep debt and the stock market was extremely soft at the time—an ugly combination for a company seeking to make a public offering. But that is exactly what Banks proposed. At the time, Forbes described the proposition as “the equivalent of getting an oil tanker through the eye of a needle.” To the surprise of observers, however, Banks persuaded two brokerage houses to underwrite a $5.6 million offering that brought much needed cash into Grow’s coffers. As Grow’s sales swelled to more than $200 million during the late 1970s, the company’s stock price surged in the wake of investor enthusiasm.
As a result of sluggish activity in its core automobile and housing markets, Grow’s profits and sales stagnated during the early 1980s, hovering around $240 million. Earnings began to recover in 1984, but Grow’s pain during the downturn convinced Banks that the company should begin diversifying into other areas that offered more growth and would reduce the company’s total dependence on coatings and chemicals. During the early 1980s, Banks began developing two pet projects, both of which were a distinct and perhaps odd departure from the paints and coatings business: Thermaljet and Enviro-Spray.
Thermaljet was a giant, stainless steel chicken cooker. Weighing in at 5,600 pounds and standing nearly nine feet tall, it was designed to cook 1,000 pounds of chicken parts at the same time on its 24 racks. The distinguishing feature of the Thermaljet, as its name implied, was its thermal jets, which sprayed hot water onto the chicken as part of a foolproof computer-controlled cooking process. The cooker recirculated the water and, unlike other machines, kept the water temperature just under the steaming point. The primary advantage of the contraption over existing industrial cookers was that it was less expensive to operate.
Banks’s second project, Enviro-Spray, was more complementary to Crow’s paint operations. It was a dispensing system billed as a marked improvement over conventional, polluting, aerosol spray cans. At the time, aerosol spray cans were ill-suited for food, pharmaceutical, agricultural, and other applications because of their petroleum-based propellant. Furthermore, they were apt to explode as a result of heat or puncture, making them much more expensive to insure for companies that produced or stored them. In contrast, Grow’s propellant was a sort of pouch filled with carbon dioxide that forced the product out in a pure, rather than aerated, state.
Although in hindsight both inventions seemed like a stretch for Grow, investors and analysts were enthused at the time. In fact, Grow’s stock price bolted by about 300 percent between 1982 and 1983, largely as a result of news concerning the products. At least one major stock analyst estimated that Thermaljet could eventually double Grow’s earnings and that Enviro-Spray was poised to grab a significant share of the annual four-billion-unit U.S. and European aerosol market, which alone would double or triple the company’s profits. Forbes declared in 1983 that Grow had “turned the corner under the unquestionably shrewd leadership of Banks.”
During the mid-1980s, Grow focused its growth efforts on Thermaljet and Enviro-Spray, as opposed to seeking more acquisitions related to its core businesses. Unfortunately, both projects failed to bear fruit and were deemed a flop by observers. Banks finally jettisoned both experiments by spinning them off into a company called Grow Ventures, but not before they had lost about $22 million. “They were just needlessly throwing away money,” assessed analyst Steven A. Larsen in Crains New York Business. But the failure of the two inventions was just a precursor to a string of bad luck that would plague Grow throughout the remainder of the decade.
In light of the failed poultry and aerosol ventures, Banks regained his appetite for acquisitions in the mid-1980s. His most important buy was Perrigo Co., the largest U.S. manufacturer of private-label health-care and beauty products, which he bought for $45 million. Perrigo was started by Luther Perrigo in 1887. Perrigo started out selling ointments and creams for farm animals and later began offering cold and cough remedies for people. During the 1900s, the company gradually moved into the sale of private-label health and beauty aids and grew to dominate the industry. Banks’s Perrigo deal was praised as a great bargain by industry observers. The $100 million company was poised for strong growth and was considered much more valuable than the price Grow had paid for it.
Perrigo, combined with several other acquisitions, offered the potential for strong sales and profit gains. But those investments also saddled Grow with a tremendous debt load. Although Perrigo performed well and became a prominent feather in Banks’s cap, other late-1980s acquisitions—particularly Georgia-Pacific and Aqua Chem—became a serious drag on Grow’s bottom line. By the late 1980s, Georgia-Pacific and Aqua Chem were more than nullifying gains in other Grow divisions. Despite a rise in sales to more than $500 million, earnings slumped from $7.6 million in 1986 to $1.3 million in 1987 as the company’s stock price slid from $12.50 to around seven dollars by late 1987.
Environmental problems added to Grow’s troubles during the late 1980s. For example, in 1981 Grow sold a marginal paint resin plant to U.S. Polymers Inc. and assumed that it had seen the last of the aging facility. In 1987, though, EPA investigators discovered that toxic materials had been dumped at the plant. Even though the dumping had occurred in 1969, two years before Grow assumed ownership of the facility, Grow was responsible for the $1 million clean up charge and was forced to seek remuneration from the plant’s original owner through the courts.
As a result of its prot lems, Grow was losing money by the late 1980s. Grow lost $4.6 million in 1988. Desperate for cash to meet its burdensome debt load, Banks began looking for an investor that would purchase Grow and relieve its debt burden. Banks finally found a willing buyer in PPG Industries. Unfortunately, right before the deal was closed a fire broke out at one of Grow’s Los Angeles warehouses. Hazardous gas clouds caused thousands of residents to evacuate. Scared off by a slew of lawsuits and Grow’s expected $3 million loss for 1989, PPG backed out. Grow was left solve its own problems. “I wouldn’t touch this company with a 10-foot pole,” derided analyst Kenneth Hackel in 1989 in Crains New York Business. “If the bankers showed up at their door, they’d be in big trouble.”
To stay afloat, Banks sold some parts of the company, closed down some marginal divisions, and consolidated the remainder of the company. Most importantly, he had to part with his prized Perrigo subsidiary for a meager $104 million. Banks’s worst fears were realized when, two years after it was jettisoned, Perrigo’s market value had lurched to $1.1 billion as a result of strong sales and earnings growth. “I could honestly say Perrigo was the best acquisition I ever made,” Banks lamented in 1992 in Forbes. Although the Perrigo sell-off may have represented a missed opportunity for Grow, it did help the company slash its debt load from more than $155 million in the late 1980s to about $60 million by 1990.
In addition to getting cash from Perrigo, Banks was also able to find an investor. Venezuela-based chemical producer Corimon purchased 17 percent of Grow for $39 million in 1992. Furthermore, Banks sold Grow’s U.S. paint division for a $10 million 1991 gain, and began to achieve a turn-around in several of Grow’s previously marginal divisions. Meanwhile, its core Devoe operations continued to post profits and to benefit from a U.S. economic recovery during the early and mid-1990s. Grow posted its first profit in two years in 1990. The company lost money as a result of restructuring charges in 1991, but recorded steady gains in 1992, 1993, and 1994.
Having reestablished Grow’s footings after the harrowing chain of events during the late 1980s and early 1990s, Banks resumed his acquisition efforts in 1994. He bought Sinclair Paint Company, a paint and coating manufacturer, for $51 million. Sinclair was founded by Frank Sinclair in 1928 as a single paint store in California. By 1993, its chain of 49 stores throughout the western United States was generating sales of $100 million and serving about 20 percent of the Los Angeles professional architectural market. Sinclair improved Grow’s presence in the western United States and offered a sales channel for products in some of Grow’s other divisions.
In addition to acquisitions, Grow expanded in the mid-1990s by improving existing operations and entering new markets. Its Devoe division branched out into consumer markets through mass retailers. Throughout its history it had only sold its paint and coating products through company-owned stores and independent dealers. And some observers doubted that consumers would be willing to pay the high price for Devoe’s premium products. But Grow could no longer ignore the proliferating do-it-yourself market.
Grow seemed well poised for growth in the mid-1990s. Banks had restructured the company into two operating groups: the coatings and chemicals group, which included architectural paints, heavy-duty coatings, and automotive paint and coating products; and the consumer and professional products group. As markets strengthened and Grow’s margins improved, its sales increased to more than $401 million in 1994 as profits surged to $14 million. Importantly, Grow’s long-term debt had been slashed to a trifling $3.2 million by mid-1994. The company projected revenues of $500 million in 1995 (ended in June), a figure that would equal its revenue peak of 1987. Meanwhile, the 75-year-old Banks showed no signs of slowing down.
Ameritone Paint Company; Automotive Division; Devoe Coatings Company; Devoe & Raynolds Company; Grow Group Canada, Ltd.; Household & Professional Division; National Aerosol Products Company; Sinclair Paint Company; Zynolyte Products Company.
Agovino, Theresa, “Grow Group Burns as PPG Backs Out,” Crains New York Business, September 12, 1988, p. 2.
Benmour, Eric, “Devoe & Raynolds Moves to Increase Visibility,” Business First-Louisville, January 1, 1990, p. 10.
Britt, Bill, “Toxic Real Estate—Buyers, Lenders Beware,” St. Louis Business Journal, February 9, 1987, p. 1C.
Furman, Phyllis, “Grim Times at Grow Group,” Crains New York Business, January 11, 1988, p. 3.
Hayes, John R., “The Golden Years,” Forbes, October 26, 1992, p. 282.
Song, Kyung M., “Brushing Up on the Future,” Courier-Journal, June 26, 1994, p. El.
Temes, Judy, “Finally a Profit, but Grow May Have to Shrink Anyway,” Crains New York Business, August 21, 1989, p. 2.
Wall, Jennifer R., “Grow Group Completes Acquisition of Sinclair Paint,” PR Newswire, August 4, 1994.
Whisenhunt, Eric, “Wall Street’s Loss, Perrigo Gain,” Michigan Business, September 1988, p. 21.