What’s News January/February 2020

July 21st, 2021 by Nathan Hobbs

M&A’s

PGTI Set to Acquire NewSouth

In a $92 million deal that’s expected to close in the first quarter of 2020, officials for PGT Innovations (PGTI) announced that their company will acquire Tampa, Fla.-based NewSouth Window Solutions LLC. The move capitalizes on the plans of both companies, officials suggested—PGTI through market acquisition and NewSouth by propelling existing expansion plans. The move is also expected to form a viable strategy for NewSouth owners, as they weigh an exit plan. Officials for NewSouth told [DWM] they’ve been eyeing such a deal for around the past year.

Along with market share, officials for PGTI cite NewSouth’s successful direct-to-consumer marketing and sales channels and “extensive brand awareness throughout Florida” as key factors in the deal. At the same time, the acquisition introduces a vastly new model to PGTI’s portfolio.

“This is a brand-new channel for them,” NewSouth president Earl Rahn told [DWM]. Regarding distinctions between the two companies’ operations and branding, “NewSouth is going to continue as NewSouth, and PGTI is going to continue as PGTI,” Rahn said, including the retention of NewSouth’s existing manufacturing facilities, sales channels and showrooms, he added. Rahn also confirmed that NewSouth employees will remain with the company.

Joint Benefits

In a conference call, PGTI CEO and president Jeff Jackson said his company expects to benefit from NewSouth’s preexisting channels, which he said are designed to market direct to consumers in lower pricepoint homes. Most of NewSouth’s sales, he said, are targeted at replacement and smaller orders. As a result, officials said they aren’t expecting cross-up between both companies’ existing sales targets.

“NewSouth markets directly to the consumer, which we view as creating sales potential that is incremental and complimentary to our existing dealer network,” Jackson explained. In what seemed to be a further assurance to the company’s dealers, Jackson also said that market research obtained by his company indicates that once customers have established a preference for how they purchase windows, they tend to stay within those preferred channels.

With eight retail showrooms located throughout Florida and an additional showroom in Charleston, S.C., “NewSouth is expected to aid us in the expansion of our geographic footprint,” Jackson said. “Importantly, expansion plans for NewSouth retail store locations are targeted primarily in coastal areas in the south, outside the state of Florida, which aligns with our overall diversification strategy.”

With existing plans underway to add locations as far north as Virginia Beach, Va., and as far west as Houston, “Now we have a partner to help us get there quicker,” Rahn said.

Weighing the Options

Rahn confirmed with [DWM] that PGTI was one of just many parties his company spoke to while weighing a buyout over the past year. Co-owned by founders Dan Ochstein, CEO, Earl Rahn, president, and Amy Rahn, vice president of marketing and advertising, “Dan and I have done this for almost 60 years between the two of us,” Rahn said. “We’re closer to the 70 [years old] side than the 60 side and we decided this was a good time to start talking to people,” he explained. “The other thing we recognized, what everyone brought to our attention is—we’ve been in a very hot sector,” Rahn explained. “There have been a lot of acquisitions and mergers, and purchases, and we thought it was time to stick our toe in the water.”

After weighing numerous options, “We felt that they were the best partner for us going forward,” Ochstein said. “They’re encouraging our growth and we’re staying on. No one is leaving. They’re just going to assist us in continuing our growth forward.”

Ranked consistently among [DWM]’s Top Dealers, officials for NewSouth reported in 2019 that their company managed to carve out more than $100 million in revenues, marking a more than 150% increase since 2016. The company is expected to achieve net sales for 2019 of approximately $82 million to $85 million and earnings before interest, tax, depreciation and amortization (EBITDA) margin in the mid-teens, said Sherri Baker, senior vice president and chief fi nancial officer for PGTI. Meanwhile, “By leveraging PGTI’s size and scale on raw material purchases and applying efficient practices to NewSouth’s production operations,” the deal is expected to craft an additional $2 million in benefits, PGTI’s announcement suggested.

NewSouth’s leadership is committing to “another three to five years,” Rahn said. “And if we’re having a good time and feeling good, we’ll continue beyond that.”

Manufacturers Acquire Expanded Markets

While the level of merger and acquisition activity in 2019 feigned by comparison to the year prior, three manufacturers showed the strength of their hands in the fourth quarter by purchasing their way into new and expanded markets.

In the final days of October, in a move that officials say is aimed at the high-rise, commercial and glass markets, Novatech Group, a manufacturer of steel entry doors, door glass, patio doors and insulating glass, announced the purchase of glass products manufacturer Laurier. Laurier will be known as Laurier Architectural going forward.

In October, MI Windows and Doors (MI) and Hardwoods Distribution Inc. (HDI) both announced plans to purchase other brands and companies, moving swiftly to execute over a matter of weeks.

Officials for MI announced their company completed the purchase of Milgard Windows and Doors from Masco Corp. on November 7. Following acquisition, officials for MI and Milgard said that synchronizing markets enables the conglomerate to meet regional demands while balancing sales and offerings across new construction and remodeling.

In mid-October, HDI announced plans to acquire Pacific Mutual Door Company, a wholesale distributor of interior and exterior doors, custom millwork and other building products. The $34.5 million deal is designed to serve as an entry point for HDI into the Tennessee and Kansas markets, said president and CEO Rob Brown. Brown cited both markets as “attractive,” further assuring that the acquisition would generate, “minimal customer overlap and alignment of key supplier relationships.” The company announced the completion of its purchase on October 29.

Pacific operates five facilities in Nashville, Tenn., Kansas City, Mo., Olathe and Osborne, Kan., and Albuquerque, N.M. The acquisition of HDI includes several brands and five distribution and manufacturing centers: PMD (Kansas City, Mo., and Albuquerque, N.M.), Warren Brothers Sash and Door (Nashville, Tenn.), Olathe Millwork (Kansas City, Mo.), and Hardman Wholesale (Osborne, Kan.). Each business continues to operate under its respective brands, officials said, as part of Rugby Architectural Building Products (Rugby), a division of HDI.

Kudos

Cascadia Windows and Doors received the International Passive House Conference’s aesthetic and innovation award for its Universal Series fiberglass windows.

Masonite International Corp. was recognized by Underwriters Laboratories’ (UL) Building and Life Safety Technologies team with the UL Dedication to Safety award. The award recognizes commitment to safety testing and innovation.

Quanex Building Products announced that several of its brands and companies won National Fenestration Awards. Edgetech UK and Liniar, the company’s European subsidiaries, were named Spacer Bar Company of the Year and PVC Company of the Year, respectively. Liniar won the New Product of the Year Award for a new flush sash window profile. Edgetech’s rigid spacer solution came in third place in the New Product of the Year category.

Roto Frank of America Inc. received the Manufacturer of the Year Award from the Middlesex Chamber of Commerce (MCC) in Connecticut. The award was presented by MCC president Larry McHugh amid the group’s annual Business Awards Ceremony to Roto president and CEO Chris Dimou, along with numerous other employees.

Cutbacks

Industry Shows Ups and Downs Heading Into 2020

Cutbacks among several door and window companies might have sounded alarms in the final months of 2019, but a closer look suggests that at least some of those moves are matters of changing strategies. At the same time, they’re tempered by news elsewhere in the industry—including at Quaker Windows and Doors, where they’re celebrating progress on a $63 million expansion, and 84 Lumber, where the company announced more than $700 million in new financing. Officials for 84 Lumber say some of those funds will be aimed at advancements in information technology.

Jeld-Wen filed a Workers Adjustment and Retraining Notice (WARN) with the North Carolina Department of Commerce in late October, notifying the department of plans to close a Lexington-based facility that produced interior and exterior doors.

Within days of Jeld-Wen’s filing, local news sources began reporting that PGT Innovations (PGTI) would cut employees at several of its Florida-based operations. Communications manager Stephanie Cz confirmed PGTI’s cutbacks with [DWM] but declined to comment on how many would be affected or what impact those changes would have on the company’s operations and facilities. Officials for Jeld-Wen confirmed that its closure eliminates 135 jobs.

Following news about cutbacks at Jeld-Wen and PGTI, a move by Marvin to close one of its facilities in Cortland, N.Y., might have drawn concerns from across the industry, but instead appears to be driven more so by a change of strategy hinged to a recent acquisition by the company.

In late October, Marvin announced it had completed the purchase of Connecticut-based distributor A.W. Hastings, including Hasting’s New England and Eastern New York-based facilities. Officials said operations in Cortland will be consolidated into a base facility in Enfield, Conn., in order to streamline operations across the region. At press time, Marvin’s distribution facility in Cortland was scheduled to close on December 31. Officials told [DWM] that half of the location’s estimated 31 employees will continue working for the company.

According to local news reports, Quaker’s 200,000-square-foot expansion will add 290 full-time jobs in Missouri.

Oak Mouldings Excluded from Chinese Tariffs

Good news arrived in November for door and window companies importing oak moldings from China. The Office of the U.S. Trade Representative (USTR) issued a notice of product exclusions for duties on certain Chinese goods following Section 301 actions affecting approximately $200 billion worth of trade. Among those exempted are “standard wood moldings made of oak.” Other products pertaining to door and window manufacturing include fiberboard sheets containing phenolic resin and tool tips, strips and sticks made of tungsten carbide.

Legal

Pella’s Lawsuit Against Apogee Terminated

A lawsuit filed by Pella Corp. against Apogee Enterprises, alleging that Apogee failed to make payments for its June 2017 purchase of glazing systems manufacturer EFCO Corp., has been terminated. The move followed several motions over a three-month period for extension of time to respond to a complaint filed by Apogee. The suit was originally filed by Pella in the U.S. District Court of the Southern District of Iowa (Central Division) in July 2019. Following a dismissal in late October with prejudice by all parties, the case cannot be reopened.

In its original complaint, Pella alleged that despite a stock purchase agreement signed prior to the sale of EFCO, Apogee failed to make $2.5 million in payments to Pella. Apogee’s counsel also informed Pella that Apogee wouldn’t make any of a third scheduled payment. Apogee purchased all of EFCO’s stock in a sale totaling approximately $195 million. The second part of the complaint focused on a General Contract of Indemnity (GIC) executed by EFCO, Pella and Travelers Casualty and Surety Company of America in January 2016 for the Wanda Vista Tower Project in Chicago.

According to the stipulation of dismissal with prejudice document, each party will bear its own fees, costs and expenses related to the suit. Such dismissals are often signs of a settlement, although neither party has given an indication of such.

Pella Corp. and Apogee Enterprises did not respond to [DWM]’s request for comment.

Jeld-Wen Ordered to Pay Another $7M to Steves and Sons

On November 19, a Virginia judge issued an additional judgement against door manufacturer Jeld-Wen. Stemming from an antitrust case dating back to 2016, Judge Robert E. Payne ruled in favor of a motion by plaintiff Steves and Sons’ (Steves) for further relief, requiring Jeld-Wen to pay an additional $7 million. The penalty tops off a prior awarding to Steves from a February 2018 verdict.

According to a memorandum of opinion, the Judge agreed with Steves’ claims, filed in May 2019, suggesting that Jeld-Wen continued to overcharge for doorskins in violation of the two door manufacturing companies’ supply agreement even after a jury ruled in Steves’ favor.

“Both parties agree that Jeld-Wen owes Steves for overcharges,” the memorandum of opinion stated, “However, the parties disagree as to how to calculate those damages.”

The court accepted Steves’ calculations on the basis that the jury had originally implicitly accepted the calculations made by an expert for Steves’ in an initial jury ruling.

Points of Interest

FlexScreen Lands on Shark Tank

In mid-December, [DWM] received notice that Joe Altieri, president of FlexScreen, would appear on an upcoming edition of ABC’s Shark Tank. The reality show serves as a testing ground for entrepreneurs, where they get the chance to present their ideas to potential investors. With the results of his pitch awaiting a reveal, Altieri was deliberately short on details.

When the show aired on Jan. 5, Altieri entered the tank asking for $800,000 for 6% of his company, but then walked away with a similar deal for his “first and only flexible window screen.” It wasn’t until after three sharks made offers—then counter offers—that Altieri had to choose, ultimately going with shark Lori Greiner, for her track record in the hardware space.

Greiner came in with the final offer of $400,000 up front and $400,000 for a line of credit for three years at 6% interest, and a 10% equity stake in the company.

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