Traditionally, when one glazing sector company takes over another, it’s usually a fabricator buying a fabricator. Or even a sysco buying another sysco. There have been a number of these so far this year, all seemingly at the same time. You can catch up with this year’s industry acquisitions on DGB Features.

But what about installers? You don’t always see installers taking over other installers, unless it’s small local installers coming together to come to some sort of deal that expands the newly formed group. So what about fabricators taking over installers? It’s never really been a trend. But it could be.

Vertical integration

Fabricators buying installers isn’t a new thing. It’s already happening. The best example I can give is a business called HWL Trade Frames. They’re a fabricator of PVCu windows and doors, including the Residence Collection, Solidor composite doors and others. They also have an aluminium business. Crucially, they own a couple of installers. The didn’t always, but they grew to a size where they could merge installers into their business. The installers they took over now sell the products they make. A novel way in which to guarantee their products get sold and installed in those local areas, and cements their market share in that area.

This is vertical integration. When a fabricator buys out an installer and organises it so that the installer they have just bought sell the windows and doors and other products they might fabricate. It’s a new type of business model that we’re seeing in our industry, and given the mood for consolidation, I think we’re going to see a lot more of it over the next five years or so.

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In-built benefits for both

It’s a relatively simple model to follow. A fabricator buys an installer, perhaps one that needs investment or saving from closure. The fabricator makes that installer sell and install the windows and doors they make. There are benefits to this.

For the installer, they get financial backing and therefore security from a company larger than themselves, and usually with deeper pockets too. Safety secured and a better prospect for growth and profitability. The obvious downside being that they now have to sell and install the products their new fabricator owners ask them to. A restriction perhaps, but maybe not a bad one if the product is good.

The benefits for the fabricator are obvious. Although having to spend money on purchasing the installation company, they now get instant access to the installation part of that local market. The only other method would have been to start an installation business from scratch. That’s a lot of hard work and investment, and comes with a greater chance of failure. Not only that, they will then get a potentially huge natural bump in sales down to their newly purchased installers selling and installing the windows and door they make. In turn, they cement and grow their local market dominance, and create a platform from which to expand. They would quickly get the investment back and more.

It seems so simple. Why aren’t more doing it? Over the next five years, we could find that many fabricators do start to explore this option.

Steady as you go

For me, there is still an oversupply of companies versus consumer demand. Too many installers and too many fabricators. We’re already seeing larger fabrication groups start to hoover up some of the acquisition targets out there. But now it will be installers that become the focus of their cross-hairs.

It would not surprise me to see fabricators go on quite an aggressive acquisition trail of installers. The smaller, more nimble installers would make easy targets, and wouldn’t be too expensive to take over. However, fabricators may want to tread a steady line. The last thing they would want to do is reduce local competition.

For example, a large regional fabricator could look to acquire a number of installers to help build their vertically integrated business model. So they scout around their local area and pick out a number of installers that they believe would make good companies to purchase. So they do. But by doing so, they then create an anti-competition environment. Suddenly, all those installers who were previously very different, selling different products and using different sales methods, are now all the same. By doing this, the fabricator risks diminishing the businesses they have bought. Their profitability would fall, and would ultimately be damaging to their new business model.

So while I believe that vertical integration is a clever and simple business model, fabricators should be careful not to flood a local area with their products via installers, therefore devaluing their brand, their product, the installers they purchase and ultimately their own business.

There are interesting times ahead, and I really do think that vertical integration is going to play a bigger part as we go on.

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