The $2.4 billion private-equity transaction that was announced on Wednesday combining Ply Gem and Atrium brings the relationship between the door and window giants full circle. A little more than 20 years ago, they almost merged.

DWM research shows that in 1997, Atrium tried to buy Ply Gem for $260 million, but Ply Gem backed out of the deal and was eventually purchased by Nortek for $310 million. (Atrium received $12 million in breakup fees and expenses after the proposed acquisition went sour.)

Nortek later sold Ply Gem to private-equity firm Caxton-Iseman in 2003. During the next decade, Ply Gem bought 10 smaller companies. By 2012, the firm was generating $1.2 billion a year in revenue.

Atrium had a rockier road to the merger than Ply Gem did. In January 2011, the company filed for Chapter 11 bankruptcy protection. It completed its balance sheet restructuring in May of that year. Atrium  secured new equity and financing from Golden Gate Capital and Kenner and Co. Those two private-equity firms acquired 92.5 percent of the reorganized company’s new common stock.

Here’s a look at what’s happened since then.

The IPO and Beyond

Ply Gem launched an IPO in May 2013, and the initial stock price was $21 per share. Trading on the New York Stock Exchange under the ticker symbol PGEM, the stock quickly rose to $23, but by August 4, 2014, it had fallen to $8.22 per share.

In February 2017, the New York Post reported that Caxton-Iseman was seeking $2 billion to sell its stake in Ply Gem. The day before the 2018 Atrium deal involving private-equity firm Clayton, Dubilier & Rice (CD&R) was announced, Ply Gem’s stock was valued at $18.10. After the announcement that CD&R would simultaneously acquire Atrium and Ply Gem and combine them into a single large company, Ply Gem’s stock climbed to $21.45, a 52-week high.

A Big Company

The combined company, which is going private, will be a giant. Ply Gem’s total net sales for 2016 increased 3.9 percent to $1.9 billion. Figures for 2017 haven’t been released yet, but they will likely exceed $2 billion.

Atrium, which is privately held, says it generated approximately $350 million in  revenue in 2017.

The newly expanded Ply Gem will also have a large footprint in North America.

Ply Gem has 8,500 employees at more than 65 locations in North America. The company says it is No. 1 in vinyl and aluminum windows in the U.S. and No. 1 in windows in western Canada.

Atrium Windows is headquartered in Welcome, N.C., about 100 miles west of Ply Gem’s HQ near Raleigh. The company also has operations in Dallas and London, Ontario. It employs about 3,000 people. In early February, the company announced that it will be hiring about 150 workers each at its North Carolina and Texas facilities, according to a report in the Triad Business Journal. However, Atrium vice president of human resources Lori Imhoff told the publication that the merger and the staff expansion are unrelated. She said Atrium’s growth and  a drive to increase efficiency are behind the hiring spree.

The Bigger Picture

Michael Collins, an investment banker and a partner in Building Industry Advisors who specializes in mergers and acquisitions in the door and window industry, is a columnist and blogger for DWM. Here’s a preview of what he has to say about the deal in his upcoming column in the March issue of DWM:

“The PE fund behind this deal, Clayton, Dubilier & Rice, has a great track record of success in investing and works with some of the most successful executive operating partners in the PE industry. In other words, a great source of smart money just made an enormous bet that the future of the door and window manufacturing industry looks bright and profitable.”

Freedonia Group analyst Carolyn Zulandt thinks the merger will produce an industry giant.

“This new combined company will benefit from improved production and distribution efficiencies, as well as advantages like shared technological expertise in a very competitive industry,” she said. “Together, Ply Gem and Atrium should capture a share of the U.S. window market that comes closer to that of industry giant Andersen than any other supplier. The greater economies of scale and scope of the larger combined company should also make it a stronger competitor in the other building product markets served, which include doors, fencing, roofing and siding.”

Impacts on Dealers

It’s unclear what effect the merger will have on dealers. It could mean increased supply-chain efficiencies in the long run, but that could come at the expense of some longstanding business relationships.

“With mergers like this, it may be painful when you look at the short term, but  hopefully long term it benefits everyone,” said Arlin Kethley, owner of Paul Ryan Windows in Porter, Texas, a major Ply Gem dealer. “In the end, the consumer will ultimately decide and give you your answer to whether it’s right or wrong.”

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