Marazzi added to Mohawk’s stable of venerable brands

HICKSVILLE, N.Y.—After much speculation, Mohawk Industries got a new “toy” for the holidays as the company announced its purchase of Italy’s Marazzi Group for approximately $1.5 billion.

During an investor conference call, Frank Boykin, Mohawk’s CFO, said the acquisition will be financed through a combination of cash, stock and
new financings. “We expect to use about $300 million in cash, $320 million
 in Mohawk stock and $900 million in new financings.”

Founded in Modena, Italy, in 1935 by Filippo Marazzi Sr. and his family, the privately held company has become a global leader in ceramic tile with worldwide brand recognition, specifically in Europe, Russia—where it holds the No. 1 position—and the U.S. Its global leadership can be seen by such innovations as the single fire process, which revolutionized the industry and made ceramic more accessible to a wider market.

Boykin told investors Marazzi’s worldwide sales in 2012 are estimated at 865 million euros (approximately $1.15 billion at press time). Less than 50% of its sales are in Europe, with the remaining split between Russia and the U.S. And, of its worldwide shipments, 19% go to Italy and Spain.

Jeff Lorberbaum, Mohawk’s chairman and CEO, added Marazzi operates manufacturing facilities in Western Europe, the U.S. and Russia, which complement Mohawk’s existing geographies of the U.S., Mexico and China. Marazzi has more than 14,000 customers around the world and 6,300 employees.

He said this acquisition represents “the next step in the expansion of Mohawk’s global business. Marazzi is an attractive strategic acquisition [and] provides Mohawk with additional growth opportunities and the benefit of a proven management team. Marazzi has the No. 1 position in the Russian market, which is similar in size to the U.S.”

Lorberbaum added, “Marazzi has many of the same positive characteristics that we found attractive when we acquired Dal-Tile and Unilin. All were leaders in their markets, with high quality management teams. Each company differentiates itself in the market by providing innovative products, excellent service, efficient manufacturing and leading design. Since becoming part
of Mohawk, both Dal-Tile and Unilin have contributed
to our top-line growth and produced significant shareholder value. We anticipate Marazzi providing similar results.”

When combined with Mohawk’s tile sales, the Marazzi purchase represents annual revenues of more than $2.75 billion, making it the world leader in the category.

Within the U.S., Mohawk’s Dal-Tile division, which also includes the American Olean brand, is already No. 1 in the category. But Lorberbaum explained, “Marazzi strengthens our position by improving our product line, technical expertise and design capabilities. The combination of Mohawk and Marazzi creates opportunities to expand U.S. distribution through service centers and other channels, source tile from our worldwide assets, utilize our relationships to expand all product categories, and deploy innovation and design trends to all our global ceramic businesses. Mohawk and Marazzi’s strong management and solid financial position combined with process and material knowledge, distribution expertise and synergies with other products will deliver additional value to our shareholders.”

While Chris Wellborn, Mohawk’s COO, will take on the additional responsibility of leading Mohawk’s global ceramic segment, John Turner Jr., president of Dal-Tile Corp., told FCNews during an exclusive interview Marazzi’s U.S. business will fall under his auspices.

U.S. plans

Turner was quick to add that U.S. customers of either brand will notice no difference for the foreseeable future. “We are very committed to maintaining the strength of each because they are very complementary.”

In a letter sent to Dal-Tile customers, John Cousins, vice president of sales, stressed this point by stating, “We are committed to preserving the unique strengths that made Dal-Tile’s and Marazzi’s businesses successful over the years. The brands will maintain separate identities in the market and they will continue to serve each channel as they do today. To a large extent, you will continue to do business with us in the same way that you have done in the past.”

In addition to this, he said the company will continue its focus of “helping customers profitably grow [their] businesses,” and pointed to three key ways Mohawk intends to do this. “The combination of these two companies will leverage complementary product, manufacturing, and technical and marketing capabilities; through access to the global capabilities of each organization, we will be able to bring new, innovative products and services to market more quickly, and we are also committed to maintaining the high level of sales and customer service support you have come to expect from our organizations.”

Turner said Marazzi’s U.S. operations consist of two manufacturing plants—one in Florence, Ala., the other in Dallas, where Dal-Tile is headquartered just 15 minutes away. “Marazzi’s Dallas operation is a monster site with multiple facilities sprawled across it.”

He explained Marazzi’s products are distributed directly from the two manufacturing sites along with 14 service centers across the U.S. Marazzi is also supported by traditional flooring distribution companies.

Products are sold through three channels—distributors who service specialty dealers, home centers, and service centers. Lorberbaum said the big boxes are currently the largest of the three areas.

Marazzi products are sold under two brands—Marazzi and Ragno. Turner called Marazzi a “package brand,” because it offers “just about everything,” including glazed ceramic, glazed porcelain, technical tile and color body porcelain. “Ragno is a premium brand featuring the best of the breed along with niche porcelain that fits a specific need not filled by the Marazzi brand or anyone else.”

Overall, he said, “Marazzi not only operates fantastic facilities, it consistently offers quality products and great service. That is why it is consistently rated among the best brands and companies on the market— just like Dal-Tile.”

Turner was not exaggerating. As an example, last year both Marazzi and Dal-Tile were voted the Best Ceramic Manufacturers in their respective categories in the 16th annual Award of Excellence competition sponsored by FCNews and the World Floor Covering Association. In fact, it was the sixth time Marazzi received the honor and the 14th for Dal-Tile.

When combined with the American Olean, Daltile and Mohawk brands, he added, the company will be going to market with a formidable package for residential and commercial customers.

“The Mohawk brand is in a unique position as it pursues the traditional floor covering dealer and carpet customer interested in tile by leveraging the strength of the Mohawk relationship. The other four brands tend not to compete with the same distribution customers so we’re picking up a broad use.”

Turner further explained, “If the end user dealer carries just our brands he will not have any need to carry anything else. We will be able to layer things over each other so they will receive more differentiation in visuals to give them a product offering ranging from commodity tile to high-end designer looks.”

He concluded by noting the Marazzi acquisition is a great opportunity for Mohawk, “it is also a fantastic opportunity for each of our customers. Both organizations are managed very similarly in terms of quality and professionalism, yet we each bring something unique to the table. So when combined, they will benefit customers of either brand because we will be able to do more for each.”