IBS Highlights Growing Interest in Building Technologies

Private equity firms and strategic acquirers are taking notice as the housing market continues to strengthen and builders increase their use of more-advanced products and technologies.

Monday, February 22, 2016

In January the National Association of Home Builders (NAHB) hosted its annual International Builders’ Show (IBS) in Las Vegas. Having attended the conference, which was held in conjunction with the National Kitchen & Bath Association’s Kitchen & Bath Industry Show, it is clear that composites and other specialty materials are playing an increasingly important role in the residential construction industry. Having met with numerous private equity investors and corporate executives at the conference, it is also clear that financial and strategic buyers are very interested in acquiring assets with a differentiated angle in the space.

In the article, we examine the themes that were generating the most interest at this year’s IBS. We also discuss how these trends are driving interest from acquirers in specialty materials for building products applications.

Housing Industry Participants Optimistic About Continued Recovery

Among conference attendees and presenters, there was a tone of measured optimism about the continued recovery and growth of the residential construction industry. David Crowe, NAHB chief economist, said that despite some headwinds there are multiple signs pointing to the continued growth of the housing industry and the overall U.S. economy. All of this adds up to a strong—but not spectacular—forecast for housing activity growth in 2016.

Crowe said that 2015 saw strong residential construction activity, with home building spending far outpacing the year’s tepid GDP growth. Quarter-over-quarter increases in home building spending in 2015 ranged from a high of 27% in the first quarter to a low of 8% in the third quarter. Builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index, reached its highest level since the housing crisis. Crowe also pointed to 2015’s sharp increase in household formations and rental prices as very positive leading indicators for the housing industry. Tempering this optimism, however, are concerns about U.S. exports, the cost of labor, and the unprecedented levels of 25- to 34-year-olds living with their parents.

Specialty Materials Innovation and Adoption Accelerate in Home Building Products

A quick walk through the exhibitor halls at this year’s conference showed the growing importance of products with differentiated technologies or specialty materials for home builders. Whether for end-uses such as flooring, roofing, walls, or decking, many of the exhibitors were promoting new products made from composites, high-performance plastics, and other specialty materials.

Contractors are increasingly demanding these products because they offer superior performance, strength, and/or durability, resulting in an improved value proposition over the product’s entire life cycle. Building technologies made from specialty materials can also provide benefits to builders and home owners such as easier installation, reduced maintenance, improved weather resistance, and enhanced color retention.

Because of these differentiated, valuable attributes and the associated superior market position and growth prospects, specialty building technology companies have significantly outperformed companies selling general or commodity building products over the past decade. Specialty materials companies also have superior financial profiles, making them more attractive acquisition investments for both strategic acquirers and financial sponsors.

Buyer M&A Appetite Remains Strong

At the conference we had numerous meetings and conversations with representatives from private equity firms, executives, and corporate development professionals from strategic acquirers. From these conversations and from recent transactions we have completed, it is clear that financial sponsors and strategic acquirers are actively looking for opportunities to increase their presence in specialty building products. Financial sponsors, in particular, have become very interested in investing in building products companies that offer highly differentiated product performance properties.

Additional value drivers in specialty building products transactions include leading brands/market positions, advanced manufacturing capabilities, and proven management teams. These characteristics played a large role in the four building technology transactions for which William Blair served as the exclusive advisor since November 2015.

In November William Blair advised Plaskolite, Inc. in connection with the company receiving a controlling investment from Charlesbank Capital Partners. Plaskolite is one of North America's largest manufacturers of rigid plastic sheet and sells a broad range of ABS, acrylic, polycarbonate, PETG, and polystyrene sheet and related sheet coatings and specialty polymers. These are used in applications such as lighting fixtures, windows, spas/shower tubs, signs, and furniture.

In December William Blair advised Nudo Products, Inc. (NPI), a portfolio company of RFE Investment Partners, on its sale to Grupo Verzatec. NPI is a leading provider of wall panels and other specialty materials for building products applications, operating under the Nudo, Marlite, Midwest Folding Products, and Prime Panels brands.

In December William Blair advised Lynx Grills, Inc., a portfolio company of Century Park Capital Partners, LLC, in connection with its sale to The Middleby Corporation (NASDAQ: MIDD). Lynx is a leading designer and manufacturer of premium branded residential outdoor equipment, including a comprehensive line of grills, island accessories, specialty cooking appliances, and refrigeration products.

In January William Blair advised Wolf-Gordon Inc., a portfolio company of Corinthian Capital, in connection with its sale to Saw Mill Capital.  Wolf-Gordon is a leading value-added designer and specialty distributor of high-end wallcoverings, textiles, and specialty paint to the commercial construction and renovation markets.

We expect building products companies with highly differentiated products and technologies to continue to generate widespread acquisition interest as the housing market continues to strengthen. To learn more about the trends that are shaping deal-making activity in specialty building products, please do not hesitate to contact us.

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