Latest Gypsum Technologies News
Dec 31, 2015
Consumers are once again buying new homes, spawning fresh interest in the makers building components, including Woodcraft Industries, Gypsum technologies and USA Wood Door Tweet Sales of new homes in the U.S. have continued to climb in recent months, according to the U.S. Department of Commerce. Harris Williams & Co. managing director Michael Hogan explains that private equity firms and strategic buyers will continue to seek deal opportunities in the construction industry. Harris Williams recently advised cabinet manufacturer Woodcraft Industries on its sale to Quanex Building Products Corp. (NYSE: NX). The deal marked an exit for Olympus partners. Other recent deals include Wynnchurch Capital’s investment in Gypsum Technologies Inc. and Masonite International Corp.’s (NYSE: DOOR) acquisition of USA Wood Door. Hogan spoke to Mergers & Acquisitions about M&A trends in the construction sector and progress in the housing recovery. Has the housing market completely recovered? This market has been recovering for four-plus years. While that sounds like a long time, we are still 30 percent to 40 percent below average. There is still some way to recover and there is a very strong recovery on the way. Bankruptcies are near record lows and I think that’s a positive. Are certain regions recovering more quickly than others? The pace of the housing and remodeling recovery has varied significantly by region, which has implications for the outlook for various regions. Generally all regions are expected to see nice growth over the next few years. Since most of the manufacturers, distributors, and service providers of reasonable size are either national or serve multiple regions, local trends and variation in performance by geographic market haven’t had a major impact on M&A activity. In what ways do Quanex and Woodcraft complement each other? Often times they are delivering products on an adjusted time basis. The products are being ordered one kitchen at a time through big-box retailers such as Home Depot Inc. (NYSE: HD). Quanex has a similar model to Woodcraft, in terms of quick turnaround and the company was looking for a new growth market. How did the target find the buyer? When we advised the prior owner of Woodcraft, which was Behrman Capital, on the sale of Woodcraft to Olympus in 2007, Quanex was one of the potential buyers competing with Olympus. We maintained a dialogue with Quanex over the years about potential acquisition opportunities and then re-approached them when Olympus engaged us to advise them on the sale of Woodcraft. What is Quanex’s acquisition strategy? Quanex has publicly stated that it will continue to look for acquisitions. The Woodcraft deal allowed them to establish a presence in the kitchen and bath cabinet market, a market segment they previously have not served. The company will look for additional new markets where they currently do not have a strong presence. Is consumer spending going to pick up? People are in homes that have higher values and that will either drive them to buy bigger and nicer homes, or remodel their existing ones. People who have been putting off projects are finally starting to do them. For example, if your roof needs repairing, you can only put that off for so long. Also, consumers are willing to spend more on big-ticket items, such as building out outdoor living spaces. What kind of targets do you see coming to market? The mom-and-pop industry is still fragmented, and we will see consolidation there. A lot of these companies have generation issues where the children don’t want anything to do with the business. In addition, many of the segments in building products, such as roofing, windows/doors, lumber, drywall and plumbing, remain fragmented on the distribution side in particular with lots of family owned business, where there are thousands of small distributors. Will strategics remain active? I think strategic buyer activity in the industry will increase. A lot of these companies were able to get their balance sheets in order and I would anticipate them being more aggressive in the near future. Public companies are becoming increasingly active in M&A. For instance, Fortune Brands Home & Security Inc. (NYSE: FBHS) has made acquisitions. Companies have plenty of access to cash and debt, and they have pressure to grow faster.