Trend Tracker May/June 2021August 19th, 2021 by Nathan Hobbs
State of the Industry: Mid-Year Is the Perfect Time to Revisit Old Decisions and Possibilities
By Michael Collins
The intersection of the COVID-19 vaccine and strong performance in the building products segment make this a great time to be a door or window manufacturer. Lead times for inbound materials and outbound doors and windows are longer than anyone would like. However, availability is better than in the immediate wake of the 2018 trade tariffs. Without debating the efficacy of those tariffs, they had the short-term impact of making materials tough to get.
Problem Number One
Labor availability continues to be the primary challenge reported by most door and window manufacturers. It’s difficult to blame a worker who chooses, during a pandemic, to collect unemployment equal to or exceeding their base pay, rather than working. These two factors, though, combine to create a dire labor shortage in the building products industry. With universal vaccine availability among working-age adults and states beginning to wind down expanded unemployment benefits, we can hope that the labor shortage will be greatly alleviated by year-end.
Elsewhere in this issue, we examine the question of whether trends toward net-zero homes and buildings place enough emphasis on doors and windows. The short answer is probably not. But with the trend toward larger doors, larger windows and more glass in homes and buildings, fenestration products represent a fertile ground for achieving net-zero status and greater energy efficiency. As an industry, we would like to see doors and windows in the vanguard of these important movements. Dedicated lobbying and other efforts are necessary to make this a reality.
That being said, it would be a mistake to count on an influx of business resulting from code changes or government requirements meant to encourage energy-efficient products. Past programs meant to drive significant sales of energy efficient windows fizzled. So, what is a growth-oriented fenestration manufacturer to do to reach the next level? There are two great ways in which you can invest in your business in the current market.
Retooling Past Equations
The first is to invest in equipment that improves and makes your manufacturing process more efficient. Perhaps you previously determined there wasn’t a sufficient payback on a piece of new equipment, a robotic device to manipulate products as they pass through the assembly process or similar investments. Take a fresh look at those calculations to see if one or more projects may make sense now. Granted, equipment costs will have climbed if the analysis is a few years old, but did you ever think there would be a time when labor availability would be such a challenge? Make sure when you update such analyses to account for the full cost of labor—not just the hourly wages and benefits, but also the cost of recruiting, training and retraining a workforce that turns over with frustrating frequency. Try to account for the sheer aggravation value of this labor treadmill, as well as the degree of unpredictability it introduces into your overall business. Some past investments may now clear the hurdle.
With earnings high, balance sheets looking great, and banks seeking to lend into the building products segment again, this is an ideal time for the second strategy of acquiring a competitor. Try to find a competitor no further away than your maximum profitable shipping distance. Ideally, this would be a company that has products or capabilities that your company lacks. Search out opportunities where you believe that your company could make greater use of the potential target company’s product offering. Someone with a small window manufacturer once said to me, “I’m great at designing and making windows, but I’m terrible at selling them.” Sometimes, making yourself the ideal acquirer of a business is your ability to solve a critical problem for the prospective seller.
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.
To view the laid-in version of this article in our digital edition, CLICK HERE.