By Jondi Gumz
On Jan. 12, Kelly-Moore Paints, which has stores in Aptos, Santa Cruz and 61 more in the San Francisco Bay Area, announced the 78-year-old company would cease operations immediately and begin an “out-of-court wind-down of substantially all its business.”
Until last week’s layoffs, the company had 1,200 employees at 157 locations.
The closure announcement came from CEO Charles Gassenheimer, a former investment banker named to that role by the new owner in October 2022.
The buyer was the Flacks Group, which specializes in acquiring distressed businesses in hopes of orchestrating a turnaround. Purchase price was not disclosed.
Gassenheimer’s strategies included starting the process of relocating the Company’s headquarters from California to Texas, exploring new supply-chain partnerships domestically and abroad, planning technology and store upgrades, and resolving a sizeable portion of the pending asbestos claims.
For 30 years, Kelly-Moore Paints has been grappling with thousands of asbestos litigation claims related to its past use of asbestos in cement and texture products, a practice discontinued in 1981.
The company reported paying out $600 million over the past two decades to settle asbestos claims and a new study estimated future asbestos liabilities exceed $170 million.
Kelly-Moore said those settlements and the cost of defending against ongoing case filings led to a cash drain and inability to reinvest in the business.
The current owners also cited “insurmountable legal liabilities inherited” from their 2022 acquisition, including “millions of dollars of previously unpaid sales and use taxes” – and they will pursue their legal rights.
Kelly Moore Paints pursued opportunities for a potential sale, merger or reorganization, the announcement said, but with the unresolved asbestos litigation laying claim to revenues, it was impossible to attract any additional funding or interest to recapitalize, restructure or reorganize the business.
Neither a bankruptcy nor an in-court liquidation was viable given the company’s inability to fund ongoing operations and its lack of owned real estate. All the facilities are leased so there were “no unencumbered hard assets that could be made available for distribution to creditors,” the announcement said.
The local store locations are prominent: Rancho Del Mar shopping center in Aptos, and Ocean Street in Santa Cruz.
As of last week, 700 employees were furloughed, as Kelly-Moore tried to persuade investors to come aboard and sought assistance from assistance from financial advisor Houlihan Lokey to raise new capital.
However, none of the interested investors stepped forward with a Letter of Intent, according to Kelly-Moore.
The announcement said Kelly-Moore employees will be fully compensated for regular time worked, and management will continue its efforts to collect receivables to pay all accrued benefits including paid time off.
“The ownership group’s commitment from day one was to fix the business if we could,” Gassenheimer said. “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…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. Unfortunately, this was the only viable alternative remaining for us after evaluating all other potentially feasible options.”