THOUGHTS ON COATINGS AND CHEMICALS M&A - 2018

JOHN BEAGLE

CEO AND CO-FOUNDERGRACE MATTHEWS, INC.

ACA FALL COMMITTEE MEETINGS

SCOTTSDALE, AZOCTOBER 2018

“The worst place to be is in the middle. When

elephants fight, the grass gets trampled….”

-- Andrew Vachss

WHEN ELEPHANTS FIGHT…..

2

The Baseline: 2001 to 2018

Strategy & Shareholders

Building Products: The New Paint?

Priced to Perfection: M&A in 2018

TODAY’S TOPICS

3

George W. Bush becomes the 43rd president 9/11 Terror attacks on NY, DC and PA US invades Afghanistan Wikipedia goes online Apple released the iPod Average cost of gas: $1.46/gallon Enron files for Chapter 11 DJIA on Dec 31, 2001: 10,021 Song of the Year: “Beautiful Day” by U2 Friends is the #1 TV Show “Gladiator” wins Best Picture Tom Sullivan and Tom Osborne are Chair and

Vice Chair of the NPCA Grace Matthews forms dedicated chemicals group And, the paint industry looked like…….

BASELINE: 2001

4

5

TOP 50 NORTH AMERICAN COATINGS COMPANIES, 2001

Rank Company Coatings Sales1 The Sherwin-Williams Co. $3,722,000,0002 PPG Industries Inc. $3,088,000,000 3 Valspar Corp. $1,500,000,000 4 ICI Paints North America $1,350,000,000 5 DuPont Performance Coatings $1,300,000,000 6 RPM Inc. $1,120,000,000 7 Akzo Nobel Coatings $900,000,000 8 Benjamin Moore & Co. $800,000,000 9 Behr Process Corp. $730,000,000 10 BASF Coatings $692,000,000 11 Professional Paint Inc. $357,000,000 12 Kelly-Moore Paint Co. Inc. $323,000,000 13 Duron Inc. $280,000,000 14 Dunn-Edwards Corp. $240,000,000 15 Sico Inc. $224,000,000 16 Rohm and Haas Co. $200,000,000 17 M.A.B. Paints $170,000,000 18 Lord Corp. $150,000,000 19 TruServ Corp. $130,000,000 20 Ace Hardware Corp. $129,000,000 21 Diamond Vogel Paints Co. $125,000,000 22 Ameron International Performance Coatings & Finishes Co. $113,000,000 23 Ferro Corp. $100,000,000 24 P.D. George Co. $100,000,000 25 Red Spot Paint & Varnish Co. $95,000,000

Rank Company Coatings Sales26 H.B. Fuller Co., Global Coatings Div. $90,000,000 27 Yenkin-Majestic Paint Corp. $90,000,000 28 Spraylat Corp. $90,000,000 29 Tnemec Co. Inc. $85,000,000 30 Jones-Blair Co. $80,000,000 31 Coronado Paint Co. $75,000,000 32 Cloverdale Paint $65,000,000 33 Smiland Paint Co. $65,000,000 34 Rodda Paint Co. $65,000,000 35 LaFarge Road Marking $61,000,000 36 Chemcraft International $60,000,000 37 Willamette Valley Co. $60,000,000 38 Vista Paints $55,000,000 39 INSL-X Superior Coating Systems $55,000,000 40 PARA Paints $52,000,000 41 California Products Corp. $50,000,000 42 Muralo Co. Inc., The $50,000,000 43 Samuel Cabot Inc. $50,000,000 44 Seibert Powder Coatings (sub of Nippon) $48,000,000 45 Color Wheel Paint & Coatings $48,000,000 46 Columbia Paint & Coatings $45,000,000 47 U.S. Paint Corp $43,000,000 48 Iowa Paint Manufacturing Co. Inc. $41,000,000 49 Deft Inc. $40,000,000 50 United Gilsonite Laboratories $40,000,000

Source: Paint & Coatings Industry Magazine, June 2002

16 / 50 remain today. Several more encumbered. Top 5: ~$11 billion revenue

6

2017 TOP 25 COATINGS COMPANIES BY SALES

Rank Company Coatings Sales1 PPG $14,800,000,000 2 The Sherwin-Williams Co. $11,820,000,000 3 RPM International Inc. $4,960,000,000 4 Axalta Coating Systems $4,400,000,000 5 Behr Process Corp. $1,910,000,000 6 Benjamin Moore & Co. $1,300,000,000 7 Ennis-Flint $625,000,000 8 Shawcor Ltd. $405,000,000 9 Kelly-Moore Paint Co., Inc. $300,000,000

10 Innovative Chemical Products (ICP) Group $250,000,000 11 Cloverdale Paint Inc. (combined with Rodda Paint) $231,000,000 12 Diamond Vogel Paint Inc. $170,000,000 13 Yenkin-Majestic Paint Corp. $150,000,000 14 Tnemec Company Inc. $124,000,000 15 ELANTAS PDG Inc. $115,000,000 16 Hentzen Coatings Inc. $100,000,000 - $110,000,000 17 True Value Company $100,000,000 18 Vista Paints $90,000,000 - $110,000,000 19 Suncoatings Inc. $65,000,000 20 Gemini Industries $60,000,000 21 TIGER Drylac U.S.A. Inc. $59,700,000 22 Sheboygan Paint Co. $50,000,000 23 Farrell-Calhoun Inc. $40,300,000 24 Lanco Paints & Coatings $23,000,000 25 Fortech Products Inc. $17,500,000

Source: Paint & Coatings Industry Magazine, July 2018

Few giants, a few $100mm plus, and small players. Top 5: ~$38 billion revenue

PPG AND SHW MARKET CAPITALIZATION: 2001-TODAY

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Mark

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($ m

illion

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NYSE:SHW NYSE:PPG

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2018: OH NO! GODZILLA!!!

Brand strength Raw material purchasing Raw Material supplier consolidation Distributor consolidation Administrative cost savings Supply chain / logistics efficiencies Regulatory cost absorption Production synergies Technology Expanded distribution Extended geographies Opportunity to diversify with scale Cost of Capital

“My weighted average cost of capital is less than 10% -

ROAR!!!!” - Godzilla, 2018

“the optimal business strategy depends upon the makeup of

the shareholders….”

-- me, trying to sound important

9

SO, WHAT SHOULD WE DO?

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BUSINESS STRATEGY DEPENDS ON THE SHAREHOLDERS

Private Equity

Private Businesses

Public Companies

Private businesses – least aggressive strategically and transactionally Preserve the asset!

Public companies – moderate risk taking strategically and transactionally Set and exceed expectations versus peers

Private equity – generally extremely aggressive both strategically and transactionally Diversification across multiple PE investments allows for aggressive strategy, tactics and

capital structure

So, what is the best strategy? If you don’t know the shareholders, you cannot answer this question

A strategy that is “right” for PE-backed platforms is probably “wrong” for large public companies and private businesses, and vice versa As examples, specific growth objectives, capital expenditures, acquisition appetite and valuation,

geographical expansion, debt tolerance and management incentives are all extremely dependent on the risk tolerance and expectations of the shareholders

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BUSINESS STRATEGY DEPENDS ON THE SHAREHOLDERS

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PRIVATE BUSINESSES

First and foremost: Protect the family jewels

Ancient history (pre-2001): Godzilla was scary, but not too scary The top 5 coatings companies totaled ~$11 billion in revenue Private companies didn’t just survive, they thrived Could effectively compete for quality business daily Basically, you could “outhustle” the structural cost disadvantages the industry presented

Multigenerational businesses were good investments for families, and the next generation wanted to take on the job of protecting the asset and growing the company

YESTERDAY VERSUS TODAY

13

Today: Godzilla has real teeth! Top 5 coatings companies total revenue ~ $38 billion SHW and PPG individually have revenues in excess of top 5 total from 2001

Risk profile of coatings/chemical businesses is high and increasing Financial – cost disadvantages, capital markets Regulatory – lead, asbestos, labelling, FCPA Litigation – SHW Ad from 1904 Criminal – Hurricane Harvey / Arkema’s peroxide business

Next generation rethinking the future given market conditions

14

PRIVATE EQUITY

Sammy Sosa - PE Role Model!

THE PRIVATE EQUITY BUSINESS MODEL

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Raise $100M Fund I from investors

Buy a number of companies via

leveraged buyouts

Fee generation during fund life

After 3-7 year holding period, sell companies

Return $100M + profit on sale of companies to

investors

Calculate fund performance and repeat

Funded with combination of equity (cash) and debt

Use cash flow from acquired businesses to pay down debt over time

Increase EBITDA (improve operations, cut costs, grow organically or through acquisitions)

1%-2% annual fees on invested funds

Annual management fees from portfolio companies

Paid to managers and employees of the fund

Sell to either strategic buyer, another PE fund or IPO

Share profits after return of capital (sale of acquired companies): 80% to institutional investors / 20% to fund

Current target for middle market funds is ~20% IRR

If fund’s IRR beats industry average, raise bigger fund ($250M Fund II) and repeat steps above

Combination of pension funds, insurance companies and / or high net worth individuals

Shampoo Bottle Approach: Lather, Rinse, Repeat

PRIVATE EQUITY IN FOUR GRAPHS

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1) More private equity firms, 2) with more equity money they MUST invest, 3) with greater access to debt, 4) at lower IRRs.

1 2 3 4+ + + = …

1,200

1,400

1,600

1,800

2010 2011 2012 2013 2014 2015 2016 2017

4.7x 4.8x4.1x

4.9x 5.1x5.6x

5.1x5.6x

3.0x

4.0x

5.0x

6.0x

2010 2011 2012 2013 2014 2015 2016 2017

300

450

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900

2010 2011 2012 2013 2014 2015 2016 2017

Dry P

owde

r ($ b

illion

s)

Increased Debt Availability Increased Equity Contribution

Increased # of PE Firms Increased Dry Powder

Source: PitchBook

1 2

3 4

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017

Firms Historically Utilize 40% Equity

PRIVATE EQUITY IS ACTIVE AND COMPETITIVE

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Median North American Private Equity EV/EBITDA Multiples (All Industries)2010 – 2017

4.7x 4.8x 4.1x 4.9x 5.1x 5.6x 5.1x 5.6x

3.6x 4.0x4.1x 3.2x

4.1x4.4x 5.1x 4.7x

8.2x 8.8x8.1x 8.2x

9.2x10.0x 10.2x 10.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2010 2011 2012 2013 2014 2015 2016 2017

Debt/EBITDA Equity/EBITDA Valuation/EBITDA

Record amount of private equity capital: 12/2016 - 4,300 active US PE funds Control $1.5 trillion dollars of equity capital

Operating partners / industry experts or other “angle” Returns rates dropping dramatically (market efficiency)

IRR Return AnalysisPurchase Price / 2018 EBITDA Mutliple

22.6% 6.5x 7.0x 7.5x 8.0x 8.5x6.5x 28.1% 22.9% 18.7% 15.2% 12.3%7.0x 30.3% 24.9% 20.7% 17.2% 14.2%

Exit Multiple (of 2023 EBITDA) 7.5x 32.3% 26.9% 22.6% 19.0% 16.0%8.0x 34.2% 28.7% 24.3% 20.7% 17.6%8.5x 36.1% 30.5% 26.0% 22.3% 19.2%

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SAMPLE LEVERAGE BUYOUT ANALYSIS($'000s)

Sources Uses% of Total x 2018A 2018E EBITDA $21,650

Account Amount Cap Equity % EBITDA Rate PIK Transaction Multiple (2018 EBITDA) 7.5xRevolver – – 0.0% – L + 350 – Purchase Price 162,375Senior Term 86,600 52.2% 0.0% 4.00x L + 500 – Transaction Expenses 3,681Mezzanine 10,825 6.5% 0.0% 0.50x L + 1100 – Total Uses $166,056Current Ownership Roll – – – – – –New Private Equity 68,631 41.3% 100.0% 3.17x – –

Total Sources $166,056 100.0% 100.0% 7.67x

CapitalizationAt Close 2019 2020 2021 2022 2023

Revolver – – – – – –Senior Term Debt 86,600 75,664 62,930 48,117 31,477 12,886Mezzanine Debt 10,825 10,825 10,825 10,825 10,825 10,825Equity 68,631 76,778 87,855 100,278 114,400 130,346

Total Capitalization 166,056 163,266 161,610 159,220 156,702 154,057Cash Balance – – – – – –

KEY TAKEAWAY: PE FUNDS GRADED ON A CURVE

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PRIVATE EQUITY’S LITTLE SECRET……

You don’t walk your way off an island!

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PUBLIC COMPANIES

“I don’t need to outrun the bear!”

GM CHEMICALS INDEX: HISTORICAL PUBLIC EBITDA MULTIPLES

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0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

10Y Avg. Multiple: 10.5x

Current: 12.2x

Low: 5.2xFebruary 2009

Note: The Grace Matthews Chemical Index is comprised of 98 publicly-traded chemical companies, spanning multiple markets, geographies, and company sizes.

100 Publicly Traded Chemical Companies EV / EBITDA multiples

GM CHEMICALS INDEX: HISTORICAL EBITDA TRADING MULTIPLES BY SUBSECTOR 2015-18

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Note: The Grace Matthews Chemical Index is comprised of 98 publicly-traded chemical companies, spanning multiple markets, geographies, and company sizes.

14.3x 13.5x 12.2x 10.7x7.0x

12.7x7.1x

19.9x

11.4x 9.1x

15.7x

10.0x12.0x 12.9x 12.9x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0xDec-15 Dec-16 Dec-17 Current

Public Trading EBITDA Multiples by Sector

Multiples have trended upwards from 2015 to present across nearly all chemical sub-sectors Top sectors by public trading EBITDA multiples:

Flavors & Fragrances: 19.9xPaints & Coatings: 15.7xAdhesives: 14.3xAgriculture: 13.5x

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OK, YOU ARE BIG, PUBLIC AND HAVE A GROWTH MULTIPLE. HOW DO YOU GROW EARNINGS?

Possible bottom line growth drivers Cost cutting (on your own, or with activist investor “help”) – one time benefit Pricing power New technology

Possible top line growth drivers Coatings acquisitions (few remaining pureplay targets remain – the math is tough!) Trench warfare – win business (zero sum game for industry) Technology, maybe?

New products and markets? Must be big enough to move the needle – paint brushes and sprayguns ain’t enough! So, what is a big enough and adjacent enough that won’t make Wall Street shudder?

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BUILDING PRODUCTS – THE NEW PAINT? Relatively simple math – Grow or suffer!

Public companies are priced at multiples that assume growth well beyond what is possible organically As the big get bigger, the law of big numbers catches up – they are “the market”

There are not enough acquisition targets in paint that are sizeable, let alone actionable, in paints and coatings

Building products is one logical extension. The bridge from paint goes something like this….. Paint….. Solvents, stains, floor coatings, etc (“paint-like” and related – very comfortable here!) Other “goop in a can” – waterproofing, roof coatings, etc. (comfortable here, too!)

Building envelope / perimeter products not in a can (broadly defined) - Rolled goods, adhesives and sealants, soundproofing, fire protection, tapes, non-chemical products

Nails, screws, hardware, tools, lumber – the other 192 aisles at Lowes - Too far, for now. “But who buys it? Where? Who applies it? Can we trust them?” – Good questions, all!

Most large coatings companies dabble here, either directly or as a channel partner, but I suspect that the dabbling becomes serious via acquisition in the near future

Historical issues in the Paint and Coatings industries soured us on Building Products* Asbestos snuck in via legacy building products acquisitions Product liability / class action suits for roof coatings, floor coatings, drywall, wood preservation, and

other building products had disproportionate impact on the coatings industries view of these types of products and markets

Contractor QC, warranty issues, etc. are higher risk than in traditional paint world

PPG, SHW, AKZO already have dipped toes in the water here, but some have fully embraced the Building Products strategy: RPM is arguably a building materials company as much as a paint company (with DAP and Tremco as

the obvious examples) About ½ of Quest was building products (sold to GAF) ½ of Jones Blair (NeoGard) was commercial construction (sold to Hempel) More than ½ of ICP (Innovative Chemical Products) are specialty Construction Products

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BUILDING PRODUCTS*

* Broadly defined: Construction Products, Building Products, Construction Chemicals

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ICP EXAMPLE: CONSTRUCTION PRODUCTS AND PAINT

Audax backed ICP has made 10 acquisitions to date. Notable deals include California Products, 3M’s Polyfoam business, FOMO and Nicoat

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ICP – MULTIPLE STRATEGIC GROWTH AREAS*

Window Sealers / Caulk

Marking Paint

Insulating Film

Carpet Backing Adhesive

HD/LD Maintenance Coatings

Concrete Care

* Grace Matthews opinion solely, not based on any proprietary ICP information

Examples of possible organic and inorganic growth areas*

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WHAT DOES ALL THIS MEAN IN THE DEAL WORLD?

Values at historical highs Sellers market: supply and demand imbalance “Priced to perfection” creates due diligence and execution risk at unusually high

levels

“It seems relatively simple – a lot of deals at high prices!”

WHAT IS DRIVING INCREASED M&A ACTIVITY?

1

2

4

5

Strong Macro Environment

Consolidation – “Race to the Top”

Increased Private Equity Activity

Strong Balance Sheets / Pressure to Grow!

Internal Pressure

External Pressure3 Activist Investors

6 Portfolio Management Efforts

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“Sentiment Drives Action”

“Robust Coatings M&A Market”

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WHAT IS BEING SAID ABOUT THE CHEMICAL M&A MARKET?

ECONOMIC TAILWINDS ARE DRIVING STRONG COMPANY PERFORMANCE

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Industrial Production Light Vehicle Sales

Housing Starts (in thousands)Construction Spending Industrial Production: Key End Use Markets

Unemployment Rate and Civilian Labor Force Participation Rate

60

70

80

90

100

110

120

130

140

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160

100=

2012

Lev

els

Industrial Production Production of Crude Oil

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Millio

ns o

f Veh

icles

Seasonally Adjusted Annual Rate12 Month Moving Average

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

60.0%

61.0%

62.0%

63.0%

64.0%

65.0%

66.0%

67.0%

Aug-

07

Aug-

08

Aug-

09

Aug-

10

Aug-

11

Aug-

12

Aug-

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Aug-

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Aug-

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Aug-

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Unemploym

ent Rate

Civil

ian L

abor

For

ce P

artic

ipat

ion

Rate

Labor Force Participation Rate Unemployment Rate

200

400

600

800

1,000

1,200

1,400

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Thou

sand

s of

Uni

ts

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Valu

e of C

onst

ruct

ion

Put i

n Pl

ace (

$milli

ons)

Private Public

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8

Industrial Production (Total)Semiconductors

Iron & SteelFabricated Metal ProductsComputers & Electronics

Structural PanelsPlastic Products

Foods & BeveragesConstruction Supplies

Petroleum RefiningTextile Mill Products

Rubber ProductsAppliancesFoundries

Motor Vehicles and PartsAerospace

PaperFurniturePriniting

% Change Y/Y (3MMA) January 2018

INCREASED M&A ACTIVITY OVER THE LAST 18 MONTHS

32 32

Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Adhesives 11 9 8 12 15

Agriculture 20 21 20 20 21

Building Products 58 55 81 55 68

Commodity 16 8 32 25 19

Distribution 9 14 9 10 15

Diversified Chem. 47 57 38 24 41

Flavors & Fragrances 10 15 8 3 6

Industrial Gases 2 4 5 4 4

Minerals 5 9 8 14 4

Paints & Coatings 19 14 25 24 21

Resins & Polymers 13 17 40 23 23

Surfactants 2 3 0 0 1

Water Treatment 7 10 13 6 2

Univar – Nexeo: Sep 2018

Nippon Paint – Dunn Edwards: Mar. 2017

Announced Global M&A Transactions by Quarter

Transaction Size: $2.0 billion

Rationale: pressure on distributors to add scale, as their suppliers and customers consolidate. This combines the #2 and #5 global chemical distributors. Largely scale driven: Supply chain optimization, fleet utilization, purchasing power. $100mm cost synergies, offset by a one tome $150mm integration charge.

Transaction Size: $595 Million

Rationale: Foreign buyers are aggressively seeking a local footprint in the U.S., but there are few remaining independent architectural coatings manufacturers. Dunn was one of the last sizable candidates available.

Transaction Size: $2.3 Billion

Rationale: Lyondell was looking to expand its existing compounding business. The addition of A. Schulman's business will double Lyondell’s compounding business and create a premier global provider of advanced polymer solutions with extensive geographic reach.

LyondellBasell – A. Schulman: Sep. 2018

Dow – DuPont: Sep. 2017

Transaction Size: $73 Billion

Rationale: Facing activist investor pressurebecause of stagnation resulting from intenseprice competition, Dow and DuPont agreedto a $70+ billion merger to ward offcompetition and increase access to funds forgrowth. The merger allows the companies tonavigate challenges in the agricultural andchemical industries and eliminate redundantoperations.

SHAREHOLDER ACTIVISM IN COATINGS VALUE CHAIN

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Activist investors have, to one extent or another, impacted a significant number of companies in the Coatings value chain

Select PE Holdings in Coatings Value Chain

Year of Sale 2010 2018Debt Multiple 3.5x EBITDA 5.0x EBITDADebt Pricing L+9.0% L+7.0%Target Equity IRR 20%+ 18%+Price / Multiple $150 mm / 7.5x $200 mm / 10.0x

Example: Chemical Company ARevenue: $100 mmEBITDA: $20mm

Growth Rate: 3.0% / yearSame buy-in/sale multiple

RECENT PE ACTIVITY IN THE RM VALUE CHAIN

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Takeaway: The same business marketed in 2010 vs. 2018 would generate a minimum 33% increase in value, based solely on capital markets. In other words, cheaper and more available debt, combined with lower expected private equity return expectations, adds $50mm in value to a $150mm company.

Net Debt / Debt Capacity at TEV / TEV /Company EBITDA 4.0x EBITDA LTM Revenue LTM EBITDADowDuPont 1.5x $67,496 2.2x 10.4xBASF 1.0x 58,607 1.3x 6.6x3M 1.3x 34,120 4.2x 16.2xEcolab 2.4x 12,093 3.7x 17.4xAir Products 0.3x 11,894 4.4x 13.0xEastman 2.8x 9,404 2.0x 8.6xWacker Chemie 0.7x 4,786 1.2x 5.9xFMC Corporation 2.4x 4,574 3.6x 13.0xAkzo Nobel 3.1x 4,298 2.5x 8.7xAlbemarle 0.7x 4,104 3.6x 11.6xClariant 1.7x 4,026 1.6x 10.3xRPM 3.0x 2,616 1.9x 15.9xAshland 3.8x 2,464 2.1x 12.3xW.R. Grace 4.1x N/A 3.7x 14.7xPolyOne 3.1x 1,521 1.3x 12.1xH.B. Fuller 6.0x N/A 1.6x 12.9xKemira 2.6x 1,389 1.0x 8.5xSensient Technologies 2.7x 1,065 2.8x 14.9xInnospec 0.9x 706 1.4x 11.2x

Summary StatisticsMean 2.3x 2.4x 11.8xMedian 2.4x 2.1x 12.1xHigh 6.0x 4.4x 17.4xLow 0.3x 1.0x 5.9x

STRONG BALANCE SHEETS AND CREDIT AVAILABILITY

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Median Historical Debt / EBITDA Multiples (2)

Select Public Companies from the GM Chemical Index (3)

Note: Theoretical analysis showing a company’s borrowing capacity assuming leverage of 4.0x Net Debt / EBITDA.

4.6x 5.0x4.2x

5.1x 5.4x 5.7x5.2x

5.7x6.2x

0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x

2010 2011 2012 2013 2014 2015 2016 2017 2018 (Q2)_____________________1. Preqin, Q2 2018 Private Equity update. 2. Pitchbook, U.S. private equity breakdown / Thomas Reuters LPC.3. Capital IQ, data as of October 2, 2018.

Relative debt tolerance differences between public companies and PE backed businesses reflect shareholder expectations and drive capital structure.

Median Net Debt / EBITDA ratios:

Strategic Median Debt - 2.3x EBITDAPE Backed Median Debt - 6.2x EBITDA

M&A – PORTFOLIO MANAGEMENT

Bolt-Ons / Consolidation Carve-Outs Transformational

~12 deals completed since 2016

~15 deals completed since 2015

Description: Small/mid-sized acquisitions that supplement existing business

Drivers: Desire to expand products/markets/capabilities or enter new geographies. Cross-selling opportunities and cost synergies are prevalent.

Description: Divestiture of non-core business or assets by parent organization

Drivers: Monetization of business unit that may not be core to parent; capital deployment elsewhere Recognition of strong valuations Push for portfolio optimization Pure-play vs. Diversification

Description: Large-scale acquisition that establishes a new business model or adds significant scale

Drivers: Synergy capture or consolidated industry

Scale Synergies Margin expansion

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STRATEGICS PAYING FOR SYNERGIES: SHW / VAL

Assuming SHW reaches the full $320 million of synergies = ~10.0x EBITDA multiple paid

Exceptional Strategic Fit – Size, Markets, Geographies, Products

Purchase price ~ $9.1 billion = ~15.0x EBITDA

Valspar at the time of the transaction:

Valspar EBITDA: $0.7 billion (15.0x EBITDA)

Valspar Revenue: $4.3 billion (2.7x revenue)

Synergy target: $280 million (~6% of revenue) by 2018

Nearly half coming from raw materials

Purchase multiple including synergies: 10.9x EBITDA

Synergy Update: Full-year synergy run rate in 2017 was $230 million

$320 million in synergies to be achieved by 2018 year-end

Long-term synergy run-rate of $385 - $450 million

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STRATEGICS PAYING FOR SYNERGIES: SHW / VAL

Assuming SHW reaches the full $320 million of synergies = ~10.0x EBITDA multiple paid

Exceptional Strategic Fit – Size, Markets, Geographies, Products

Purchase price ~ $9.1 billion = ~15.0x EBITDA

Valspar at the time of the transaction:

Valspar EBITDA: $0.7 billion (15.0x EBITDA)

Valspar Revenue: $4.3 billion (2.7x revenue)

Synergy target: $280 million (~6% of revenue) by 2018

Nearly half coming from raw materials

Purchase multiple including synergies: 10.9x EBITDA

Synergy Update: Full-year synergy run rate in 2017 was $230 million

$320 million in synergies to be achieved by 2018 year-end

Long-term synergy run-rate of $385 - $450 million

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DOES THE MARKET LIKE IT?

39

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

SHW PPG

Transaction Announced: March 2016

Since the SHW / Valspar transaction announcement, SHW has added ~$16 billion

in market cap vs PPG

GRACE MATTHEWS COATINGS INDEX

40

-

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Timeline: January 2001 to September 2018

Paints & Coatings

16.7x EBITDA

8.1x EBITDA

Since 2001, Public Market coatings EV / EBITDA

multiples have doubled from 8 to almost 17

Ente

rpris

e Valu

e / E

BITD

A

41

SELLERS MARKET – A PERFECT STORM

Scarcity of high quality targets of scale – sellers call the shots on value, terms and sale process

Many private chemical business owners are rethinking the family “hold” strategy Long and medium term industry structure very unfavorable to subscale coatings

/ chemicals producers The intangible benefits of owning a chemical business have declined

Public sector strategic buyers have intense pressure to grow – the 16.7x EBITDA public multiple has growth baked in

Private equity is a viable buyer of businesses at strategic pricing The pressure to place money on PE cannot be overstated We are seeing PE do things we never would have believed in terms of value

and flexibility

42

PRICED TO PERFECTION

43

PRICED TO PERFECTION

At today’s outlier values, Seller expectations are high, and Buyers have no margin for error.

Repricing is largely dead.Instead, surprises kill deals.

The amount of preparation required to close is paradoxically

high.

2001 to 2018: The rise of Godzilla and the disappearance of the middle!

Optimal strategy depends on the shareholders

Building Products: The New Paint? – I think so!

Priced to Perfection: No surprises!

WRAP UP AND THANK YOU

44

THOUGHTS ON COATINGS AND CHEMICALS M&A - 2018

JOHN BEAGLE

CEO AND CO-FOUNDERGRACE MATTHEWS, INC.

ACA FALL COMMITTEE MEETINGS

SCOTTSDALE, AZOCTOBER 2018