Kelly-Moore Paint Company ceases operations

22 January 2024

After 78 years of operation, significant layoffs and the recent acquisition by the Flacks Group, Kelly-Moore Paint Company has immediately ceased operations, beginning an orderly, out-of-court wind-down of all its business.

The announcement comes days after the company laid off about 700 workers and temporarily stopped operations at its manufacturing plant in Hurst, TX in the hope of a return to full operations.

Cash drains caused by asbestos legal settlements, legal liabilities caused by current ownership, and supply chain challenge investments led to Kelly-Moore’s “inability to fund its continued operations.”

The Flacks Group acquired Kelly-Moore in October of 2022 and appointed Charles Gassenheimer as CEO to evaluate and implement strategies for improving the Company’s financial situation. These strategies included relocation of its headquarters from California to Texas, exploring new domestic and abroad supply-chain partnerships, planning store upgrades and strategic technology, and resolving sizable portions of the pending asbestos claims.

“I’m extremely disappointed and saddened by this outcome, as the entire Kelly-Moore team made incredible efforts to continue innovating and serving the unique needs of professional painting contractors,” said Gassenheimer. “The ownership group’s commitment from day one was to fix the business if we could. Sadly, no matter how great the Kelly-Moore team, products, and reputation for service, we simply couldn’t overcome the massive legal and financial burdens that have been weighing on the company for many years.”

Kelly-Moore recently sought financial assistance from Houlihan Lokey in the hopes of a new capital to enable a turnaround. However, no interested investors stepped forward with a Letter of Intent, leading to insufficient funding to continue operations.

The Company has also engaged and worked with outside professionals to assess and potentially improve its liquidity situation. It explored options for new funding sources or partnerships to avert a wind-down. Keely-Moore and its advisors extensively pursued opportunities for a potential sale, reorganisation, merger, or new capital investment, which have all proved unsuccessful.


View from the US: Looking behind and ahead

“Our owners took on significant financial risks in the acquisition last year,” Gassenheimer continued. “Unfortunately, despite their extraordinary efforts after acquiring this distressed business, they simply couldn’t overcome the unexpectedly large challenges, and will be exiting the business.”

Kelly-Moore has been tackling thousands of asbestos litigation claims related to past use in cement and texture products for over 30 years. These products and practices were discontinued in 1981 and occurred under prior ownership. This has caused severe constrain to the Company.

Largely due to the asbestos litigations, it was impossible for Kelly-Moore to attract additional funding in interest to recapitalize, reorganise, or restructure the business.

Despite paying approximately US$600M in asbestos settlements over the past 20 years, a recent study commissioned by the Company estimates future liabilities to exceed US$170M. Kelly-Moore has been unable to reinvest in the business including investments needed to address historical supply chain challenges there were exacerbated by the recent pandemic.

Kelly-Moore has also been impacted by large legal liabilities inherited by the current ownership group from their acquisition of Kelly-Moore in 2022. This includes millions of dollars in previously unpaid sales and use taxes that Kelly-Moore is pursuing its legal rights.

“I could not be prouder of what our talented team accomplished under extremely challenging circumstances. My deepest sympathy goes out to our loyal employees, customers, industry partners and the communities where we do business, who have supported Kelly-Moore throughout its long history,” Gassenheimer concluded. “Unfortunately, this was the only viable alternative remaining for us after evaluating all other potentially feasible options.”

Since the Company could not fund its continued operations, and since it leases all facilities, Kelly-Moore has no unencumbered hard assets that could be made available for distribution to creditors.

During the wind-down process, Kelly-Moore will continue to fulfill previously placed customer orders to its fullest extend from existing inventory from its Union City, CA distribution facility. All other facilities, including retail stores and its manufacturing facility in Hurst, TX, are permanently closed effective immediately.

Employees will be fully compensated for regular time worked and management continues to collect receivables to pay for all accrued benefits.

Bankruptcy, reorganisation, or in-court liquidation were non-viable, or advantages given the Company’s inability to fund operations. Kelly-Moore leaders have informed employees, stakeholders, and creditors to cease operations and conduct and orderly, out-of-court wind-down process.

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