Last week we saw the major news that US-based Masonite, one of the largest door companies in the world, had bought the entirety of the DW3 Products Group from North Edge Capital in a deal worth around £70m. You can catch up on that news here.
If you think that this will be the only big deal of the year in the window and door industry, you’re probably going to be wrong. This could be the start of a slew of big deals being rushed through.
The time is now
Why would deals be rushed through you may ask. Well, time is ticking on the global economic sweet spot we’ve been in for a while now. Interest rates have been low around the world, including the UK which have had record low borrowing rates for nearly a decade. Credit is still relatively cheap and available. The window on all of this however is closing. It is this impending ending that was one of the reasons for the spooked stock markets over the last couple of days.
So, if I have some cash to spend, some product portfolios to grow and market share to increase, I really need to start buying up window and door companies within the next few months.
It is still likely that both here in the UK and the US that interest rates could be notched up at least a couple of times. The end results being money more expensive to borrow. If I have my eye on a few window companies, then I need to be snapping them up now.
Lots more consolidation
The truth of the matter is that our industry is still well over-supplied in the number of companies in a lot of areas. The shape of our sector has changed massively, and the number of fabricators in certain areas has dropped accordingly. Yet, you only need to take a look at the figures published in the last Insight Data market report to see that there’s still far more companies in various parts than there needs to be.
There is going to be a lot more consolidation to come, and it may come this year. We see it in other areas of industry. Media for example, where AT&T are wanting to merge with Time Warner Cable. A creator of content merging with the broadcaster of content. There’s also a CBS/Viacom deal in the works that would create another media giant. In the world technology, where semiconductor companies Broadcom and Qualcomm are seeking to merge in a £$122bn deal which would be the biggest in tech history. In healthcare, US pharmacy CVS wants to purchase health insurance giant Aetna in a deal worth $69bn.
Obviously we’re not going to see any fenestration related takeovers worth anywhere near that much in the UK. AT&T are worth $225bn alone. But what I think we will see is a continuation of the biggest buying out the bigger. We have already seen groups such as DW3 (Masonite), Customade Group, Synseal etc all grow massively in a relatively short space of time thanks to acquisitions as opposed to natural revenue growth. It’s happened because they have the money to do so, and the saturated nature of the industry means the biggest companies can snap up competitors or smaller companies and automatically expand their market share.
There’s plenty more to go. For example, given the wobbly nature of the national right now, it is feasible to think of a scenario where one of them buys the other out. Reports say that one of them is pretty shaky right now, and if I was one of the big ones and had some spare cash, it might be worth exploring the idea of taking over the others to boost market share and take out competitors at the same time.
I think though that the most consolidation is going to come in the fabrication market. There is a slew of middle-ground suppliers out there, churning along in mid-gear, not breaking new ground. These sorts of companies are the ones in the way of more expansive businesses looking to grow aggressively. It’s these sorts of companies which provide those doing the buying an ideal chance to create a group of companies from pretty much nowhere. I’ll say this, some of the acquisitions this year will be done from outside the UK. Like the Masonite deal last week, our current economic and political situation leaves British companies ripe for the picking.
2018 could be a volatile year in all senses of the word, and the M&A scene could be a busy one.
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