Follow-through: Capital Activity Has Reached a Point of Inflection

By Michael Collins

As the end of the year approaches, merger and acquisition (M&A) activities, plant expansions and closures, and company closures reveal a mix of optimism and pessimism. As with most events these days, it’s impossible to interpret those stories without comparing timelines to that of the progression of COVID-19.

The most negative of the harbingers we track—business closures and bankruptcies—shows the strong underpinnings of the overall door and window manufacturing segment. We have tracked just two business closures in 2020, which were announced in April and May. It seems likely that these companies would have been facing economic challenges prior to that time and that the initial shutdowns for COVID-19 were the final straw. We had tracked no bankruptcies or business closures since 2017, when there were also two shutdowns. In total, including this year’s closures, there have only been 17 door and window manufacturers shuttered in the past ten years.

While every company shutdown, by definition, means that a plant has been closed, we track separately when companies shutter one facility but continue to operate through others. So far, in 2020 four companies have announced the closure of five manufacturing operations. In the past ten years, the fenestration segment has been in relative stasis, after the industry came out of the last downturn rightsized and needed every available plant to service the recovery.

The return of plant shutdowns may seem negative at first glance, however, most of these closures represent rationalizations among the facilities owned. While the announcement of these closures was contemporaneous with the surge of COVID-19 in April and May, we would suspect that these decisions were planned well in advance and would have taken place with or without the pandemic.

Interestingly, we have seen a significant number of plant expansions announced this year, including by Pella and Quaker. Now Jeld-Wen seems likely to expand one of its plants. Like closures, the decision to expand unfolds over a long period of time. Once started, there is a certain amount of inertia for an expansion. For instance, at the start of the last recession, plant expansions continued even after housing market signals had started to turn south.

Following Through

Notably, all of this year’s expansions were announced after COVID-19 was widely understood to be a serious issue. Since it seems unlikely that these projects had reached the point of no return, they represent a positive longer-term view of the industry. Indeed, every door and window manufacturer that we are in touch with is busy this year, as, after interruptions early in the year, many companies stacked up “best ever” months in June, July and August.

Our final category looks for acquisitions that involve at least one U.S.-based door or window manufacturer. To date, we have tracked only two acquisitions—both of which occurred prior to the COVID-19 outbreak. Early this year, Cascade Windows bought Amerimax Windows and Sierra Pacific Windows acquired Semco Windows. We are aware of numerous transaction that went into a holding pattern in response to COVID-19 and new companies being brought to market came to a standstill. We suspect additional door and window acquisitions will be completed prior to year-end. These deals reflect capital bets on the long-term health of our industry.

Michael Collins is an investment banker and a partner in Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry.

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DWM Magazine

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