Conversations with Buyers and Sellers
by Michael Collins
The Association for Corporate Growth hosted its annual
Capital Connection recently, a networking event where investment bankers
and other intermediaries meet with private equity funds to discuss
potential deals. This forum provided an excellent opportunity to assess
the current appetite of private equity funds for investments in door and
window companies. These and other recent conversations have confirmed the
existence of a diverse group of potential acquirers and a group of owners
desiring the sale of their companies.
Buyers . . .
Twelve different private equity funds at the Capital Connection indicated
an interest in investing in door or window companies. Many of these
already own a company in the industry, while others are still searching
for their first investment. These private equity funds are drawn to door
and window companies for a number of reasons. Among these are generally
low capital expenditure requirements, relatively strong average levels of
cash flow and a certain degree of safety from overseas competition
(although such competition is certainly emerging). The private equity
funds with which we spoke at the Capital Connection together have hundreds
of millions of dollars to invest. There are numerous other funds across
the country that share an interest in this industry. These funds are awash
in cash and they benefit from a very favorable lending environment,
another critical aspect in completing acquisitions.
In addition to private equity funds, we have spoken to a number of owners
of door and window companies that are actively seeking to acquire another
company. Such buyers typically seek to acquire competitors that are
somewhat smaller than themselves. Most often, the ideal acquisition target
offers some overlapping products along with additional products not
currently offered by the acquirer. Finally, the focus is generally on
companies whose sales territories overlap or are very near the territory
of the acquiring company. We have spoken to companies seeking acquisition
targets from Maine to California and in every sector of the industry. The
most common targets, though, are manufacturers of vinyl or specialty niche
products and companies that focus on the replacement market. Serving the
replacement market is seen as a valuable source of diversification for
companies primarily engaged in the new construction market.
. . . and Sellers
In working with companies in this industry, we have identified a great
deal of potential business sale activity to satisfy the demand for
acquisitions by private equity funds and strategic buyers. Recent calls to
potential targets on behalf of prospective acquirers have uncovered strong
interest in discussing a sale. The fact is that the owners of door and
window companies as a group are a reflection of the larger demographic
picture of the country. In short, many of them are approaching retirement
or will do so in the next five years or so. Prospective sellers who are
familiar with the typical desires of acquirers know that many buyers of
companies will want the current owner and management team to remain with
the business for a period of time. Often times, this transition period
holds the possibility of bonuses based on post-sale performance–bonuses
which are nicknamed the second “kick at the can” or “bite at the
Since selling a company is not a decision to be taken lightly, many owners
entertain options to receive partial liquidity of the value of their
companies. By taking advantage of mezzanine debt, an owner can receive,
say, 20 percent of his company’s value, while still maintaining control
of the business. Such a liquidity event allows an owner to carry out
estate planning, purchase second homes and achieve other financial goals
without the necessity of selling his company.
We predict that industry consolidation will remain brisk, as active buyers
encounter interested sellers in a market awash with cash for completing
transactions. Owners in this industry, as well as others, have reported to
us that they would prefer to initiate a sale now, rather than in five
years when they perceive that an even larger group of owners desiring to
sell will enter the market. Finally, business valuations are strong right
now, providing an additional incentive to explore liquidity options.
Michael Collins is with Jordan, Knauff & Company, an
investment banking firm that specializes in the door and window industry.
He may be reached at firstname.lastname@example.org.
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