Investment Banker Hosts Online Window & Door Industry Update

Despite the current downturn in window and door sales, “buyers are actively searching now” for industry companies to buy, according to Michael Collins, senior associate with Jordan, Knauff & Co., a Chicago-based investment banking firm. Speaking to an online audience for his firm’s spring window and door industry update last week, he emphasized, “there’s no shortage of money out there.”

“Transaction multiples are increasing,” he said, in a review of capital markets in general. The rapid rise of private equity has attracted more investors. “There are so many funds out there raising money, and now they have to find a place to put it.” Also pushing up sale prices for companies are foreign investors, who see the U.S. as a good opportunity now, and the growing number of hedge funds.

Collins pointed to the recent acquisition of International Aluminum Corp. by a private equity firm, a recent management-led buyout of ThermoView Industries, and the Atrium Cos.’ purchase of North Star Windows in Canada as “a vote of confidence” in the continued potential for the window and door industry. Recent plant closings and lay-offs at window and door manufacturing operations should not be seen as signs of long-term problems for the industry, he also suggested.

“I do not feel like there’s a rush to the door,” he said. Rather, he described the moves as “rational consolidation,” given the current environment.

IMPACT OF CHINA
The presentation, available online, overviewed numerous developments within the industry and the construction market, but Collins devoted a significant portion to the threats and opportunities presented by the rise of Chinese manufacturers and suppliers to North American window and door manufacturers and suppliers.

Hardware producers may be facing the toughest challenge overall, but, there’s been significant growth in Chinese door imports, he noted. Pointing to U.S. government trade data, Collins said that the level of imports for doors and windows were nearly equal in 2002. Since that time, window imports have stayed level, but door imports have “skyrocketed,” he said. Standard sizing and lower weight are big factors, he explained, but he also sees a trend among window manufacturers to start importing doors. “They look at it as free business. They’re already in there making the sale, so adding doors can be very profitable.”

Manufacturers considering outsourcing production to China should be cautious, Collins advised. A recent survey of U.S. manufacturers that had outsourced production found the vast majority did not achieve the cost saving expected, he noted. Fuel and shipping costs, currency issues, communications, customs delays and intellectual property concerns are all real issues, he said, stressing that a company needs to really look at the “total delivered cost” when considering outsourced production.

The most successful way to outsource to China is to “own the factory,” he advised. A company should at least expect to have “boots on the ground” to make it work successfully, he added. One other trend emerging among Chinese suppliers, Collins noted, was that they are starting to ask for higher prices, responding to a push for improved quality.

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