Trend Tracker March 2020July 21st, 2021 by Nathan Hobbs
Window Shopping: M&A Activities Illustrate a Cycle of Life for Manufacturers
By Michael Collins
Mergers and acquisitions (M&A) are a seemingly permanent part of the landscape for the door and window industry. That said, M&A activity has been somewhat choppy for the past several years. As you can see from the adjacent graph, the number of acquisitions fell from 16 in 2018 to just seven deals in 2019. Of those acquisitions, six were undertaken by strategic buyers—companies already engaged in the door and window industry—and one was acquired by a private equity (PE) fund. Since that fund was already engaged in the door and window segment, it means that no new PE funds entered our industry segment during the last year.
PE funds have a tendency to invest when an industry segment is heating up. Since 2000, we have tracked 433 acquisitions and transactions in which at least one participant was a U.S.-based door or window manufacturer. Strategic buyers completed 76% of all door and window manufacturer acquisitions over that period.
However, during the period from 2004 to 2007, when the market was at its hottest stage of growth, PE buyers snagged nearly 36% of all door or window companies acquired. Their participation in deals from 2000 to 2003—a period seen as the last “normal” pre-bubble level of market activity—was just 11%. From the trough of the recession to the present, PE funds have been a buyer in one out of five acquisitions of door or window manufacturers.
In most door and window acquisitions, the buyer maintains the seller’s brand either over a long transition to the acquiring company’s brand or indefinitely, as the brands of acquired companies typically are seen as having unique value in the markets they serve (thus the acquisitions). Beyond product areas and brands that are of interest, the reasons for undertaking an acquisition, or, from the seller’s perspective of agreeing to be acquired, have remained largely the same.
For instance, the motivation on the part of a buyer to gain access to the seller’s unique basket of products in order to sell them through the buyer’s larger distribution network was cited in Jeld-Wen’s acquisition of VPI Quality Windows.
Companies of significant size typically will have some overlapping territory. In general, however, when two companies considering a combination serve distinct and roughly contiguous markets, the expansion of the buyer’s footprint often becomes a key motivator.
Another familiar strategy results in buyers gaining access to new distribution channels and products sold at a different price point than current product portfolios. This was the case in PGT’s acquisition of New South Windows, which gave PGT access to and expertise in a direct-to-consumer channel it had not previously addressed.
In any industry, the commonality of motivations to undertake acquisitions give M&A activity a self-perpetuating nature. There are hundreds of small door and window manufacturers in the U.S. that are below the radar of most large industry participants. When these companies develop successful new products or unique insights, they typically grow at a faster pace than the market. By the time they achieve greater awareness in the market, they typically have become enough of a challenge to another industry participant that they are acquired. The cycle then repeats with other companies.
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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