The aluminium market within the fenestration sector really has gone through some rapid changes over the last few weeks. In a short space of time a slew of multi-million pound deals were announced – three in a week – which have changed the shape of the residential aluminium market.
So what has been happening, and what could it mean for the fenestration sector?
Realising opportunity
For a while, I think most of us have known that the only significant profitable avenues in the sector right now are in the aluminium space. It has a cradle of strength, whilst other parts of the market have suffered over the last few years. Demand has increased from homeowners in a significant way and that demand shows no signs of reversing anytime soon.
I have long hypothesised on here that companies in the PVCu and composite parts of the market will, at some point, decide that they have to enter the aluminium market. Reducing profitability in the PVCu market will make them look at aluminium in a different way. And so it has come to pass.
Although we saw three significant deals in the space of a week not that long ago, the process of PVCu and composite companies moving over to aluminium actually started over a year ago when Endurance Doors announced it had acquired BDC Aluminium. Since then, there has been rapid change and consolidation within the sector, with a number of number of deals in a short space of time.
I don’t think we have seen the last of the takeovers. There is likely going to be other major companies in the PVCu space who are actively looking at expanding their presence in the aluminium market, and acquisitions are the most immediate way to do so. The market remains in a pretty tough spot at the moment, with evidence both in data and anecdotal that our sector is in the double-digits down on last year.
So companies with the cash to do so will be looking for ways to increase revenue streams.
It hasn’t been all plain sailing, however. While these acquisitions were being announced, Dutemann announced that it was to close its doors. Although aluminium is the stronger part of the market at the moment, it is not without its own difficulties and we may well see the failure of some other smaller outfits before the end of the year unless market conditions pick up rapidly.
Industry comments
The industry has been giving it’s own thoughts on the recent market moves as well:
Roger Hartshorn
Managing Director – Garnalex
I think it’s highly likely we’ll continue to see further consolidation within the aluminium sector over the coming months. And as with any change, as the new acquisitions settle, customers will need to get used to different contacts and processes; it’s almost inevitable that this will bring disruption.
Nigel Headford
Chief Executive – Council For Aluminium In Building
It’s an indication of confidence in the aluminium building products sector. Things may have been tougher at the end of last year, and trading conditions have been slower to improve at the start of this year than we might have hoped.
Long-term, however, forecasts for the sector are positive. Our partner, the Construction Products Association, predicts a return to growth this year, and four percent growth next year. Glennigan meanwhile, predicts an eight per cent increase in project starts this year followed by a 10% rise next year.
Managing our market is going to be important during this period of consolidation. If we are to make the most of this opportunity there are going to be at least a couple of areas that we have to pay attention to.
The first is ensuring quality supply at all levels in the supply chain. As Roger Hartshorn explores in his own piece on Linkedin, there are various moving parts of the supply chain that have to be looked after, including sourcing quality materials, transparency on lead times and quality control. As with any market consolidation, these things can become erratic as new processes are put into place and new management makes changes in their own image. So far I am not hearing of any problems resulting from any of the major takeovers that we have seen so far, which would indicate things should be going smoothly.
The second is something I have spoken about on numerous occasions on here in the past and that is avoiding a race to the bottom on price. We have to resist doing to aluminium what we did to PVCu. Competition will naturally increase in the market as more installers and fabricators add aluminium to their product portfolios. As it does so we have to make sure we sell on the values of quality and service. This is a very tough market right now, and this is certainly not the time to be undercutting competition and throwing profit margins away. If we do that, it will cheapen and degrade the whole aluminium offering to homeowners and cut short the potential this boom has.
My own personal feelings are that we are already resorting to type, and a race to the bottom on price has already begun in aluminium. I see on a regular basis marketing emails advertising prices for bi-folds per leaf at ever-reducing costs. It is a shame to see as homeowners are already conditioned to expect to pay more for aluminium, so strategies like this aren’t required.
Looking ahead to the rest of this year, I think we should expect maybe a couple more acquisitions coming from non-aluminium entities. This run doesn’t feel done, and I don’t think the rest of the industry thinks otherwise. Once this period of consolidation is over, the landscape of the aluminium sector could look very different to just a few years ago.
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