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Sep 04, 2017

Award-winning IR during a $15.8 bn merger

Bob Wells, IRO at Sherwin-Williams, talks about how the company's merger with Valspar materialized and what underpins his IR philosophy 

At a glance

Job done

Sherwin-Williams completed a $15.8 bn merger with Valspar earlier this year – a process that introduced long-time IRO Bob Wells to fixed-income investors for the first time.

Hard graft

The pace of the work was grueling, with Wells spending his days with an earpiece to keep up with the latest developments, while weekends were spent preparing for the next step in the process.

Award-winning IR

With the merger still to be completed, Sherwin-Williams put in a stunning performance at the IR Magazine Awards – US 2017, winning three awards and topping the US Top 100 ranking.

At the IR Magazine Awards – US 2017, Sherwin-Williams’ tiny IR team won big. The words ‘consistency’ and ‘responsiveness’ appeared over and over again in analysts’ feedback, and they cite the paint company so often for transparency, you would think it only made clear lacquer.

The three awards, including best overall investor relations in the large-cap category, were earned in the course of a long hyper-intensive IR drive beginning March 2016 that culminated in the successful merger with Valspar in the summer, during which the team had to cope with a host of regulatory issues as well as stroke present and putative shareholders of both companies and, as Sherwin-Williams IRO Bob Wells points out, enter a whole new field dealing with fixed-income investors.

‘That was an education!’ he reminisces. ‘You get questions you don’t know the answers to, so you go and find the answers between calls – and then more new questions come in. ‘But most of my 15 years in IR have been spent dealing with equity; this is the first time I have been exposed to debt analysts and with them there is a timing factor. You can buy equity whenever the market is open, but if you want an initial placement for debt, there is a narrow timeframe for their due diligence.’

Even without the intense education in debt and arbitrage investment, the pace was grueling. ‘I spent most of the workweek with an earpiece stuck in my ear, and weekends writing, preparing and planning, but that’s been true throughout the company,’ Wells notes. ‘In fact, people on both sides of this transaction have spent a great deal of time on it and we’re delighted at the level of talent we have acquired.’

Support from the top

Enthusiastic backing from senior management is a vital ingredient resulting in a team effort that involves chairman and CEO John Morikis, CFO Al Mistysyn, corporate controller Jane Cronin and the IR department.

‘We’re a small department of only three people who operate like company nomads,’ Wells explains. ‘We take part in management meetings, talk regularly with business unit leaders, travel with the sales people, share a corridor with the other corporate functions and generally wander around corporate headquarters as much as possible.’

While Wells admits the planning process is often informal, the aim is ‘to achieve complete alignment on what to communicate and how. [Even though] the size and transformational nature of the Valspar deal meant the stakes were pretty high, our approach stayed the same.’ The close-quarters collegiality means the team learns firsthand about new developments in the company, and about the markets it serves. ‘IR is not just a support function popping up quarterly, but an integral part of how the company is managed,’ Wells adds.

The messaging is similarly in harmony, as Wells not only handles direct investor contact himself, but also handles corporate communications and government affairs. That, of course, ensures integrated messaging, not least during the long regulatory process for the Valspar merger, which at times had all the speed of watching paint dry. Wells also invokes the help of Sard Verbinnen, ‘a talented IR/PR firm that has been through this often and helped us see around corners throughout the process.’

Typical of analyst comments on the company’s IR, Chuck Cerankosky of Northcoast Research emphasizes Wells’ comprehensive familiarity with the complexities of the business. ‘He can talk in great detail about litigation, raw material price trends, household formation and right into some of the company’s specialty coatings that have nothing to do with homes or architectural matters – so he’s well versed in all its aspects,’ he says.

‘He can let investors know that even when there are problems, there are offsets, and the company has a strategy to deal with them. Bob understands strategies, legal, competitive and hedging, and that’s always impressed me. IROs at top companies have to know a lot about everything; Bob’s not a chemist, but he knows a lot about chemistry!’

On professional qualifications, Wells identifies two typical  tracks into IR: either a communications specialist picking up finance expertise, or a finance expert acquiring communications skills – and then confesses to a creative mélange of his own. ‘My education was in finance, but I spent my first 15 years in marketing communications, so our prior CEO Chris Connor saw some IR potential in me,’ he explains. ‘My predecessor was preparing to retire, so Chris asked me to step into his shoes. I thank my lucky stars for that degree in finance. Some of the accounting issues we have to deal with now would be seriously challenging without it!’

Under pressure

During the merger, the team packed in small group meetings at every conference and roadshow and struggled to keep up with email inquiries, which resulted in some long days and weeks.

‘It was a real struggle to cope with the volume, but I want anyone who had difficulty contacting us to understand it was nothing personal,’ Wells says. ‘At times the level of questions became overwhelming. With back-to back phone calls, you make 15-minute time slots available, but everyone wants 30 minutes, which leads to a train wreck.’ In fact, Wells protests too much: the consistent  feedback from analysts polled for the 2017 US Awards warmly praised the team’s consistent and timely responses.

Adding to the pressure, during the merger the company’s Q2 board meeting and earnings release coincided with the Republican Party national convention in Cleveland, and ‘our office building is inside the zone blocked off by the Secret Service, which meant we had no access to it. So we did our board meeting in Memphis and our earnings release in Minneapolis, which is our new second home.’

Wells says the three guiding principles of his IR effort are ‘responsiveness, transparency and candor’. For example, he cites ‘a familiar rule on Wall Street: if you use a particular metric to make a point this quarter, you should expect to disclose that metric every quarter from then on. Some companies use this to justify the information they provide to investors.

We take a very thoughtful and deliberate approach to determining what data to use for our intended messages, but we generally favor providing any information that enhances investors’ understanding of our company, without jeopardizing our competitive position. Sherwin-Williams’ senior managers are also shareholders, so the benefit of having a large population of institutional investors that know and understand our story well is clear to them.

‘Candor is pretty closely related to transparency. It’s human nature to want to slant news about the company positively rather than objectively, but analysts are very good at distinguishing good news from bad. Accurately presenting news or financial results builds credibility and trust every bit as much as transparency.’

Broad remit

Sherwin-Williams is often placed in the materials sector but analysts suggest that it is, in its own way, unclassifiable.

‘We are a diversified manufacturer that transacts about 75 percent of our sales through our own outlets,’ explains Wells. ‘One sell-side analyst who has covered us for decades refers to us as a ‘vertically integrated specialty retailer’. It’s difficult to find a truly comparable business model, although there are some. The benefit of this unique model is diverse sell-side coverage, which includes basic materials, retail and home building/building materials, and all these categories provide unique and important perspectives on our business, although the fundamentals don’t differ all that much from category to category.’

Barclays Capital’s Duffy Fischer says of Wells: ‘While you might think of paint as simple, Wells is long-tenured and he can explain the intricacies, the contractor business, the DIY side and how that plays into the industrial side.

‘He’s especially good with young analysts who aren’t that familiar with the Sherwin-Williams model. He’s part of their group. He’s the one who sets up the projections, and then explains them in the context of what they think the macros will be, and why they think the earnings will be whatever. Almost every quarter in the last 14 years they have been correct.’

That is almost worth another award.

This article appeared in the Fall 2017 issue of IR Magazine

At the IR Magazine Awards – US 2017, Sherwin-Williams walked away with three awards: best overall investor relations (large cap), best financial reporting and best IR in the materials sector. It also claimed first place in the IR Magazine US Top 100, a ranking of IR teams decided by points across all awards categories. The awards research was based on a survey of hundreds of portfolio managers, buy-side analysts and sell-side analysts. For more information about the investor perception study that underpins the awards, please visit