Economic expansion and positive momentum in the housing market are driving a high level of M&A activity in the residential building products industry, according to Brown Gibbons Lang & Company.
Andrew K. Petryk, Head of BGL’s Diversified Industrials Group, discusses the state of M&A in the fenestration market in the May 2019 edition of Window & Door. Click here to access the article.
Acquisition-driven growth remains a primary strategic initiative, with valuation premiums paid for high-quality assets that bring portfolio diversification, margin expansion, and access to new markets. Marquee deals of Ply-Gem Industries (NCI Building Systems) and Western Window Systems (PGT Innovations) serve as barometers of current aggressive market conditions. Both transactions were completed at high single- to double-digit EBITDA multiples and were considered transformative acquisitions that significantly enhanced the growth and margin profiles of the acquiring businesses. These valuations are in line with the broader M&A market where the average strategic multiple reached 9.0x EBITDA in 2018. Acquisition multiples remain elevated, ticking up to 9.3x in April, supported by a strong capital markets environment in which competitive lending dynamics are increasing borrowing capacity.
2019 promises to be another active year, with fragmentation a driver of continued consolidation. Corporate buyers are aggressively pursuing acquisitions to increase scale, market position, and profitability, with JELD-WEN and Marvin among the industry consolidators to already complete deals this year. Private equity will be buying and selling, seeking acquisitive growth for current investments and looking to monetize aging portfolio assets with current favorable market conditions likely to drive more sale activity.