Webinar Examines Door and Window Industry

In an interactive online presentation from Jordan, Knauff and Co., a lower-middle market investment bank in Chicago, it was found that door and window demand is increasing in the replacement market, niche products are becoming more important to manufacturers and more national jobbers are looking at door and window manufacturers with a national presence. The Spring 2006 Window and Door Industry Update webinar, held on April 19, offered a great deal of industry information to its audience, as well as the promise of upcoming industry benchmark surveys.

Presenter Michael Collins began by noting a "definite shift in the emphasis right now from the new construction market to the replacement market."

He said that high energy prices and aging housing stock are leading homeowners to upgrade their doors and windows.

In the manufacturing process, Collins said that automation is becoming more important, as customers demand quicker turnaround times. Having as little as five days from when the order is placed to when it must be shipped is becoming more common. Collins also proposes that to stand apart from the competition, manufacturers need to develop niche products. For instance, in the Southeast, the demand is for impact-resistant products.

Another trend Collins notes is that many national homebuilders are beginning to favor working with door and window manufacturers that have a national presence. With regards to that, Collins mentioned a few recent transactions-Fortune Brand's acquisition of SBR and Kenner Equity's buyout of Champion Windows in particular-and expansions.

Collins said private equity funds are an area we're hearing a lot about in regard to transactions. He notes that of all acquisitions completed in 2005, private equity funds were involved in about 15 percent of those transactions-and between 2000 and 2005, 25 percent of transactions involving private equity funds were in the door and window industry. Collins said these funds are interested in door and window companies for several reasons. First, a "building products focus is very common among private equity funds right now." In particular, though, the door and window industry is a fragmented, consolidating industry, with high cash flow margins and low capital expenditure needs, and it has a low risk of foreign penetration into the market.

Collins also notes that for expansions, "That continues at a good pace."

He notes that American Weatherseal's expansion in Orville, Ohio, to an 180,000-square-foot facility is well above median cost of expansions seen in last five years at a total of $12 million.

"They're obviously investing very heavily in automation," Collin said.

He also said that Midwest Manufacturing is planning to break ground this summer in Shelby, Iowa, on an "absolutely mammoth facility at 735,000 square feet." Collins said this expansion is notable since 60 percent of expansions in last five years have been of window manufacturing facilities and this one is "pure door play."

From 2000 to 2005, Collins said, there was one expansion a month for the door and window industry. And most of those companies expanding their facilities are making them larger than need in anticipation of their next expansion.

Prior to the webinar, Jordan, Knauff and Co. asked manufacturers how they are responding to competitive pressures. With regards to acquisition programs, the firm found that smaller companies-with $5 to $10 million in revenue-are more commonly targeted for acquisitions. It is also more common for companies to look at geographically close companies. Companies that don't wish to acquire are focused on dealer networks to increase their size.

Some smaller companies are getting out of manufacturing altogether because larger manufacturers are simply much more productive and efficient. Noting that, Jordan, Knauff and Co. asked about the impact of big box stores. While some companies acknowledged that big box stores have made things more difficult, Collins said that other companies are seeing it as a positive.

He explains that large window companies that distribute to big boxes are expected to have constant price reductions, and to do so they can't afford to produce a product with the high quality that might otherwise be expected. That creates a niche for many regional players to produce higher quality, higher priced doors and windows.

In conclusion, Collins detailed the firm's plans to compile a series of benchmark studies to allow participants in the industry to compare their financial characteristics with competitors. Data-including productivity statistics, profitability measures, percentage of revenues spent on various expense items, net income margin, etc.-will be contributed to the benchmarking process anonymously and companies that contribute information to the process will receive priority access to the results of the survey.

In conjunction with this industry update webinar, the firm is offering a complimentary copy of its report, "The Impact of Capital Events and the Life Cycle of Window and Door Companies" to those who have not already received one. This report discusses the various stages in the development of a door or window company and includes statistics regarding recent acquisitions and plant expansions.

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