Collins The Trend Tracker
by Mike Collins
September 18th, 2014

M&A Activity Continues

The brisk pace of M&A in the window and door industry continued in the past few months with three noteworthy acquisitions. At the end of July, PGT announced it would acquire CGI Windows. The $111 million value of the deal and the fact that it was funded in part with a new debt facility are indicative of the market’s strong belief in the performance of the building products sector in the years ahead. With the market overlap between the two companies, this acquisition becomes a class example of a company deepening their footprint within an existing market, rather than buying a far-flung competitor serving another region.

At the end of July, Nautic Partners acquired Custom Window Systems from Highlander Partners. This deal is noteworthy in that one private equity fund bought a company from another. Nautic Partners clearly sees a long additional runway of growth ahead for the company. Taken together, the acquisitions of CGI and Custom Window Systems represent a strong endorsement for the previously beleaguered Florida market. While Florida has seen numerous boom and bust cycles since the 1920s, its solid fundamentals always allow the region to rise again.

In mid-August, Ply-Gem announced that it is acquiring Simonton Windows from Fortune Brands. This deal was unusual in that strategic buyers like Fortune Brands typically hold acquisitions indefinitely, as opposed to private equity funds. PE funds often buy a company with a rough idea in mind of their eventual exit, typically three to seven years in the future. In this case, Fortune Brands indicated that the divestiture will allow it to increase its focus on its Therma-Tru entry door and Fypon trim businesses.

Simonton was valued at roughly 10 times its 2014 earnings before interest, taxes, depreciation and amortization (EBITDA), a proxy for cash flow. Considering the EBITDA multiples seen in the past several years, this valuation is extremely eye catching. To be fair, though, not every door or window manufacturer that is sold will command such a high multiple. Buyers tend to place a premium on companies with a large absolute amount of EBITDA, a high percentage of EBITDA compared to revenue and strong growth rates. Still, a highly publicized transaction valuation such as this is indicative that overall EBITDA multiples have increased. This deal will be taken into account in valuing other door and window company sales. The EBITDA multiples for the other two recent transactions were not publicly announced, but we have heard that they were quite strong as well. These transactions at high multiples, in an environment of easy debt availability and a general consensus supporting the strength of the building products industry bode well for door and window owners that will sell their companies in the next two years.

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