Despite the turbulent markets in which we find ourselves, merger and acquisition activity involving door and window companies has been relatively brisk in 2009. There have been 19 transactions year-to-date, versus 31 for all of 2008. The 19th and most recent acquisition was the purchase of Superior Homes in Watertown, S.D., by storm door and window manufacturer Larson Manufacturing. This may be the most interesting acquisition so far this year.We are not aware of another transaction, this year or in the past, where a door or window manufacturer purchased a builder. (If there have been any, please email me to that effect, so we can add them to our database.) From the perspective of the door and window manufacturer, such an acquisition represents a way to ensure a captive buyer of one’s products who will not switch suppliers over a few dollars per door. When an unusual event like this takes place, we try to see past the event itself and ask what this says about the view the industry has of itself and the economic climate. In a sense, a door manufacturer buying a builder is doubling down, to borrow a term from blackjack. That manufacturer will now be exposed to the strength, or weakness, of the housing market through an integrated chain running from its own product to the production of ready-built structures. When the market recovers, a company making such a bet stands to profit disproportionately from the general improvement.

After determining what a given transaction, especially an unusual one, says about the market, we turn our attention to speculating about the possible implications of the transaction for the future. In this case, the first and most obvious question is whether Larson intends to continue to make similar acquisitions, building a large base of captive customers to ensure demand for its products and to diversify earnings. The next question is whether other companies will follow suit, buying local builders themselves. There are scores of small and medium builders that would be interested in teaming with a financially stronger organization.

Needless to say, we would love to hear from any other groups with plans to buy builders in this manner. Only time will tell how this all plays itself out in the industry. For the moment, we applaud a vote of confidence in the future of the home building industry and we draw a red line under the fact that a new potential competitive strategy has been added to the arsenals of door and window manufacturers in general.