Execs Answer Key Questions About the Masonite/PGTI DealDecember 21st, 2023 by Drew Vass, Executive Editor
– Is the acquisition a culmination of long-term plans?
– Will Masonite become a window company?
– Will the company expand PGTI’s direct-to-consumer model?
– What about PGTI’s new endeavor: Diamond Glass?
– What happens with PGTI’s brands?
Masonite announced this week it will acquire North Venice, Fla.-based PGT Innovations (PGTI). The $3 billion deal overtook consecutive offers by Miter Brands, the last of which was for $2.2 billion, Reuters reported.
On paper, the acquisition looks like a financial win for Masonite, including $4 billion in combined revenue, a 100-basis-point improvement to Masonite’s margin and a larger earnings base, to the tune of $800 million.
The deal requires a heavy dose of financing, but, “We are highly confident that we will deleverage the balance sheet very rapidly to under three times in two years,” Masonite president and CEO Howard Hecke said in a webcast.
When announcing the acquisition, Hecke mentioned PGTI’s propensity for organic expansion.
“The growth rates that PGTI has realized over the last several years have been significantly higher than Masonite’s,” Russell Tiejema, Masonite’s executive vice president and chief financial officer, told [DWM]. “In fairness, some of that is due to acquisition, but they’ve still delivered double-digit organic growth over the last seven years or so. We see this as an opportunity to take the growth plans that we have in place for our legacy business and supercharge them a bit with an even higher growth rate company that’s serving a very premium product line into high growth markets.”
The deal follows a period of ups and downs for Masonite, including a pair of acquisitions (Endura Products and Fleetwood Aluminum Products LLC), layoffs in Indiana, the closure of its facility in Stockton, Calif., and a period in the second quarter of 2022 in which officials said the company was “closely monitoring” the residential market.
All along, the company stressed that the ups and downs of its decision making reflected a master plan.
Is the acquisition a culmination of long-term plans?
“I wouldn’t read too much into that planning in this particular acquisition,” Tiejema told [DWM]. The company’s strategy was never designed around any one particular M&A target, he said, adding, “I would say any company that structures its long-range strategic plan around a specific M&A target is probably missing opportunities that lie at the periphery.”
Masonite has been active in M&A activities across multiple parts of the market, Tiejema pointed out—all tightly adjacent to the doors and door systems sector. “And we think that’s how we should run our strategy long-term,” he said.
But PGTI is more than doors; the company offers a full range of windows for replacement and new construction.
Will Masonite become a window company?
While Tiejema was unable to give a definitive answer over how the Masonite brand and product offerings will adapt following the acquisition, PGTI “clearly fits the definition of where we would be willing to branch out beyond strictly doors in our portfolio,” he told [DWM]. It’s also worth noting that, in addition to windows, PGTI is a door company, he said, though primarily the sliding glass type. “It’s a very complementary combination with our existing legacy business of hinged exterior door systems and interior doors,” he added.
Ultimately, Masonite’s brand strategy is one that “would typically be worked out over some period of time,” Tiejema told [DWM]. “No decisions made there … one should be very mindful about making a knee-jerk reaction on how to manage the brand portfolio before you have a chance to really assess the various routes to market that each of those brands serves.”
Will the company expand PGTI’s direct-to-consumer model?
Among the attractive attributes mentioned in the acquisition announcement, Masonite officials touched on PGTI’s consumer-based sales. Among the possible growth synergies, Hecke mentioned the direct-to-consumer sales format of New South Windows, acquired by PGTI in 2020. “We think there’s significant cross selling opportunities within the business,” he said.
Regarding PGTI in general, “One of the really interesting aspects about this transaction for us is their route to market,” Tiejema said. “Their channels are quite different than ours. We sell through big box retail and traditional wholesale distribution. They sell primarily direct to dealer, and in some cases direct to customer.”
While Tiejema was unable to say whether Masonite would expand PGTI’s sales format to encompass existing products, “that presents all sorts of interesting cross-selling opportunities between the two product lines,” he told [DWM].
Among other opportunities cited in the deal, Hecke described PGTI as a “designer,” also mentioning the company’s impact-rated products—a segment that PGTI president and CEO Jeff Jackson said makes up 60% of its sales.
“Their product innovation is leading,” Tiejema said. “They built that business around unique impact-resistant glass, and they have a lot of their own internal product development, and R&D and manufacturing capabilities to launch innovative products to the market ahead of others.”
What about Diamond Glass?
In June 2023, PGTI announced a new breed of thin, laminated glass for thin-triples that the company co-developed with Corning Inc. In addition to offering the material in its own products, officials said they would market and sell Diamond Glass to other door and window companies. When asked if Masonite would have been among the customers for PGTI’s new glass, Tiejema said the product isn’t particularly geared to Masonite’s swing-style entry doors.
“I think it remains to be seen what the growth trajectory looks like for that business,” he told [DWM]. “But I would point to that as an example of their very innovative approach to products and bringing to market unique aspects and features that are new to the industry.”
What happens with PGTI’s brands?
Tiejema told [DWM] that Masonite is still assessing how to best integrate go-to-market strategies for the combined brands.
“I would say, ultimately, the brand strategy is one that would typically be worked out over some period of time,” he said. “No decisions made there.”
At the present, “I don’t know that it necessarily makes sense that there’s not the continued stable of PGTI brands going forward,” he said. “They serve customers with a very differentiated product that’s quite unique for Masonite’s existing product line.”
Regarding the timing of the acquisition, “We wanted to make sure everyone was on their toes going into the holidays,” he joked.