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Mexican deal puts fresh gloss on Sherwin-Williams

Sherwin-Williams is colouring Latin America green. The U.S. paint maker says it will splash out $2.3-billion (U.S.) for Mexican rival Comex. The market at one point added about $1-billion to Sherwin-Williams' value, though the cost savings from the deal are estimated to be worth only around half as much. It's a testament to optimism about the region despite some signs of sluggishness.

The acquisition certainly has a nice gloss to it. Sherwin-Williams is paying 1.7 times sales for Comex, the same multiple ascribed to its own operations. And yet the buyer expects to wring annual synergies worth 5 per cent of Comex's $1.4-billion in sales last year, or about $70-million. Taxed and capitalized, those are worth around $500-million.

Moreover, Comex operates in a faster growing part of the world. While there aren't many details about the privately held company's growth or profit margins, if the numbers from Sherwin-Williams are any indication, they paint a pretty nice picture. Its Latin American sales increased by 23 per cent last year, roughly twice the companywide rate of increase on the top line.

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The outlook isn't entirely bright, though. While construction is on the rebound, Mexico's economy shows signs of slowing down. The International Monetary Fund projects 3.5 per cent GDP growth next year, compared with about 3.8 per cent for 2012. And in the third quarter, sales for Sherwin-Williams' Latin America unit actually decreased by 4 per cent. It's understandable that shareholders would be enthusiastic about owning Comex, but the price tag could yet leave them blue.

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