The recent acquisition of Mesker Openings Group by the owner of the Dorma and Kaba brands, announced on November 8, typifies several important acquisition trends that continue to be seen in the market. First, we have a European company acquiring a U.S. company. The size and profitability of the U.S. building products market makes this country the top spot for international expansion for manufacturers headquartered overseas. At nearly $17 trillion, the gross domestic product of the U.S. is roughly equal to the combined GDP of all the nations in the European Union.

Another key aspect of this transaction is that it furthers the extent to which the dormakaba Group can serve as a one-stop shop to its customers. In its press release, the buyer cited the addition of “manual doors and frames” to its product offering. The company also gains access to Mesker’s specialty products, such as bullet-, tornado- and hurricane-resistant doors. The ability to fill the entire opening from the door to the frame, plus hardware, automation and other add-ons, is driving the door industry. In addition to new products, the acquisition also gives dormakaba access to Mesker’s valuable, established distribution channels in the United States.

The valuation of the Mesker acquisition shows the confidence of yet another buyer in the growth of the door industry. Mesker was reported to have $67 million in revenue in 2015, with adjusted EBITDA margins of roughly 20 percent. Before we move on to the multiple itself, that is a very attractive EBITDA margin (the EBITDA divided by the revenue). This means that roughly 20 cents of every dollar of Mesker’s revenues dropped to the bottom line as cash flow, a difficult level of profitability to achieve in a company this size. We typically only encounter 20 percent EBITDA margins among small niche manufacturers. The purchase price on the transaction was $142.5 million, a multiple of 8.9X 2016 EBITDA. If we take that calculation one step further, we can determine that 2016 EBITDA for Mesker was projected to be $16.0 million, a growth rate for EBITDA of almost 20 percent over the stated 2015 EBITDA level.

What does all of this mean for the valuation and attractiveness of other companies in the door segment? A smart buyer has just paid up for strong performance and a track record of growth, and has made a large dollar bet that the door market will continue to grow.

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