Wolf-Gordon Acquisition Highlights Growing Interest in the Specialty Distribution and Building Technology Sectors

Thursday, March 24, 2016

Saw Mill Capital's recent acquisition of Wolf-Gordon, a leading specialty distributor of wallcoverings for diverse commercial end-markets, was driven by the convergence of several trends that are shaping deal-making activity for specialty distribution and building technology companies. Specialty distributors like Wolf-Gordon—that have significant brand equity, strong relationships with product specifiers, broad product portfolios, attractive cash flow dynamics, and compelling growth opportunities—have become highly attractive acquisition targets. Applying this business model to an industry such as building technologies that is at a favorable point in its market cycle creates a compelling thesis for acquirers.

In this article, we examine the factors that led to the strong interest in Wolf-Gordon. We also take a closer look at value drivers within the specialty distribution and building technology sectors.

Wolf-Gordon Acquired by Saw Mill Capital in Competitive Process

William Blair advised Wolf-Gordon, a portfolio company of Corinthian Capital, on its recent sale to Saw Mill Capital, a private equity firm that focuses on manufacturing, service, and distribution companies. Wolf-Gordon is a leading specialty distributor of wallcoverings, textiles, and writeable surfaces paint, primarily serving the hospitality, corporate, retail, and healthcare end-markets. Its leading position as a specialty distributor of a wide range of premium branded products to a diverse base of product specifiers and customers generated widespread interest from financial sponsors and strategic buyers alike.

Value Drivers for Wolf-Gordon

The strong interest in Wolf-Gordon was the result of both value drivers specific to Wolf-Gordon and broader market trends driving growth in the commercial renovation and construction markets.

Leading Brand: Over the past 50 years, Wolf-Gordon built significant brand equity in the commercial wallcovering market due to constantly reinforcing itself as a great design company by releasing innovative designs from both in-house and internationally acclaimed design partners, as well as creating memorable marketing initiatives. Wolf-Gordon generates revenue from these new, innovative designs, but, more importantly, these offerings reinforce the company's premium brand in the market.

Strong Relationships With Attractive Specifier Channel: At architecture, design, and other similar firms, individual "specifiers" are charged with selecting the products and finishes that go into the final design plans. Wolf-Gordon has established a robust set of marketing tools that includes catalogs, sales kits, and collateral. The company's industry-leading sales organization leverages these tools to strengthen specifier relationships and brand awareness. The specifier channel is very attractive given it is relatively price insensitive, valuing design, aesthetic appeal, customer service, and how the products fit with a specifier's vision as the leading selection criteria.

Capital-Efficient Business Model: Specialty distribution models are attractive to financial sponsors because they tend to be highly capital efficient. Due to their minimal capital expenditure requirements and ability to manage inventory levels, specialty distribution companies are able to generate substantial cash flow, even during a downturn.

Momentum in the Commercial Construction and Renovation Cycle: At a macro level, activity and investment trends indicate that commercial construction, which tends to lag changes in residential activity, is still in the early stages of a recovery, providing acquirers an opportunity to invest into an attractive part of the commercial construction and renovation cycle.

One of the first questions that buyers have when looking at a company in an industry that can cycle such as building technologies is: "How did it perform during the past cycle?"

William Blair prepared extensively for buyers' questions on Wolf-Gordon's performance during the recession and the recovery, focusing on explaining why Wolf-Gordon is in a better position to weather the next downturn.

After acquiring Wolf-Gordon in 2008, Corinthian Capital made significant investments to improve the company, including diversifying Wolf-Gordon's product portfolio with an enhanced textile offering and new writeable surfaces paint category. This broader portfolio has enabled Wolf-Gordon to build stronger relationships with existing specifiers and customers. Corinthian Capital also made critical investments in Wolf-Gordon's salesforce, management team, and infrastructure, including upgrades to the company's customer data tracking, IT capabilities, and enterprise resource planning, all of which combined to make the business more stable and scalable.

Attractive End-Markets: To highlight Wolf-Gordon's growth potential, William Blair procured a third-party market study to help quantify the size and growth prospects for the various end-markets that Wolf-Gordon focuses on in commercial renovation and construction. The study found that Wolf-Gordon's two largest end-markets—hospitality and corporate—had better projected growth prospects over the next three years than the overall commercial construction industry.

Attractive growth for Wolf-Gordon's biggest end-markets



Compelling Growth Opportunities: In addition to the strong growth trends in Wolf-Gordon's most important end-markets, buyers were also attracted to the company's significant opportunities for growth through continued expansion of its product portfolio. Wolf-Gordon's market position in wallcoverings has been well-established over the previous five decades, but its recent expansion into textiles and writeable surfaces paint gives the company a tremendous opportunity to grow its brand recognition in adjacent segments. Potential buyers also recognized the opportunity for Wolf-Gordon to leverage its leading market position and expand into complementary product categories through strategic acquisitions.

M&A Outlook for Specialty Distribution and Building Technology Sectors

In specialty distribution, acquisition strategies often are driven by the acquirer's need to expand product portfolios and geographic reach, mitigate online disintermediation threats (e.g., Amazon) by enhancing multichannel sales and service, and strengthen customer retention through deeper and broader product categories. This has been seen in William Blair's other specialty distribution deals that have closed since December 2015, including Total Plastics' sale to Prophet Equity, Tubular Steel's sale to Reliance Steel, and KODA's sale to Azelis Holding S.A.

We expect the continued recovery of the commercial and residential construction industries to be a catalyst for heightened interest from strategic buyers and financial sponsors in the building technology sector. In this space, acquirers have become very interested in investing in companies that have leading brand or market positons and/or offer highly differentiated product performance properties. Additional value drivers in building technology transactions include advanced manufacturing capabilities and proven management teams. These characteristics played a large role in the Wolf-Gordon acquisition and three other building technology transactions to which William Blair served as the exclusive advisor since November 2015: Plaskolite's sale to Charlesbank Capital Partners, Nudo Products' sale to Grupo Verzatec, and Lynx Grills' sale to The Middleby Corporation.

To learn more about these and other trends that are shaping the deal-making landscape in specialty distribution and building products and technology, please do not hesitate to contact us.

Early innings of recovery in commercial construction



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