Industry Sees 4Q M&As but Rarely Among Dealers

October 7th, 2019 by Drew Vass, Executive Editor

The fenestration industry has seen its share of merger and acquisition activities heading into fourth-quarter 2019. In the opening days of September, BMC Stock Holdings and WindowMaster Control Systems unveiled acquisitions—with BMC picking up Sacramento, Calif.-based Heritage One Door and Carpentry and WindowMaster acquiring North Wales, Pa.-based Clearline Inc. In mid-September, machinery manufacturers Stürtz and Pertici North America announced what they’re referring to as an “alliance.” Masco also made good on its intent to sell Milgard by striking a deal with MI Windows and Doors (MI) that’s expected to close by the end of the year. But the number of consolidations occurring at the dealer level, some experts suggest, is lacking by comparison to other segments of the building products industries.

“In early 2018, our group analyzed the building material industry for another specialized distribution category that could benefit from an industry consolidation and began focusing on the door and window industry,” said Michael Turner, investment banker for The JIAN Group in Fredericksburg, Va.

When it comes to large manufacturers, opportunities for what Turner describes as “synergistic savings” can be relatively obvious, he said. For deals like NCI merging with Ply Gem, for instance, the $1.2 billion transaction is expected to result in $150 million in savings going forward. Door and window dealers, on the other hand, largely fall within the $10-$20 million range, Turner said, making it harder to eke out substantial gains. As a result, dealers are less of a target for acquisition. Those benefits have so far been more attractive among larger lumber and building materials dealers (LBMs).

“We believe relationships and service are the key decision makers in selecting door and window products, whether from a specialty dealer or an LBM,” Turner explained. “However, specialty dealers seem to have an outsized presence among custom applications, while LBMs have a similar presence among production builders. Specialty dealers have an inherent advantage of focusing on select products, while large LBMs have the advantage of scale and capital to develop programs and tools.”

With the momentum of a housing boom in tow, consolidations were easier to come by ahead of the Great Recession, which Turner says more or less stopped M&A activity among building material-related companies until 2009. Since that time, however, M&A activity has returned to healthy levels—most notably in 2018—but, “the challenge today is we are in an economic recovery that has lasted over 10 years and the associated concerns of a possible recession,” Turner said. “M&A activity has remained strong since the Great Recession, but acquirers are more value oriented today, as a result of the length of the current economic cycle.”

Discussions over those uncertainties are what some members of World Millwork Alliance began their day with this morning, including an educational seminar covering how they might go about managing in an “uncertain economy.”

“Rather than take a back seat to see where the cards fall, it’s imperative that we take the time to proactively direct,” declared WMA CEO Rosalie Leone ahead of the association’s Annual Convention and Tradeshow, taking place this week in Reno, Nev.

While the U.S. economy has been through the longest sustained economic growth period in its history, those improvements have also driven the longest employment expansion on record since 1854, Leone said, producing labor shortages. Over the course of the next two days, attendees will look to tackle some of its toughest issues, including a keynote session titled, “ADAPT: Overcome Adversity.”

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