Volume 8, Issue 3 - March 2007
Volume 8, Issue 3 - March 2007
Companies To Watch For
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DWM’s Annual List of Companies to Watch are Comprised of Big, Small and Growing Companies Acquisitions—big ones! This was one of the key trends in 2006. So when DWM developed its annual list of Companies to Watch, three of the acquirers just had to be named. The other big trends? Small, new and growing. You’ll find one company on our list in existence for less than ten years and another less than 20. But these companies, and others named, are posting exponential growth, even in the midst of a reported “slowdown” in the market. While the list is comprised mainly of manufacturers, two suppliers were named due to the fact that they have reinvented themselves in 2006. It will be interesting to see how these companies grow in 2007. Before you get to the snapshots of each company, here’s a bit about how the list is compiled. DWM culled opinions from its editorial advisory board, experts in the industry and experienced editors. The result is a list that represents all segments of the industry—big and small. You may look at the list and say where’s x company? Now in its fourth year, we tried to choose companies that were never named (with a few exceptions). But that’s not to say that because they are not here they aren’t one to watch. For example, PGT Industries, named to the list in 2005, recently went public. One to watch? Most definitely, as there are others. But for now, read on to see why those who made the list will be making news this year. The Acquirers Andersen Windows It’s doubtful that we have to explain why Andersen is one of this year’s companies to watch. Perhaps you’ve heard of the wood giant’s acquisition of a top vinyl producer, Silver Line, in 2006. Or maybe you heard of Andersen’s layoff of 440 employees in January 2007. These, and other factors continually make Andersen one to watch. As far as the layoffs, Maureen McDonough, Andersen’s director of corporate communications, made a statement about this to DWM earlier this year. “Because we don’t expect a quick rebound, it’s clear that we have more capacity than we need to meet demand,” said McDonough. “Unfortunately, we’ve reached the point where we need to reduce the size of our workforce to align with the forecast.” It will be interesting to see how this plays out depending on the state of the housing market this year. While Andersen may be affected by a downturn, everyone will be watching the company closely due to its acquisition. Though Andersen executives weren’t available to speak to DWM for this article, we went to an independent industry expert, Mike Collins of Jordan Knauff and Co. in Chicago, an investment firm that analyzes door and window trends, for some insights on what this means for the industry as a whole. “In the case of the acquisition of Silver Line, we see a well-capitalized, successful company making the most bullish statement possible about the door and window industry buying another company,” says Collins. “Clearly, Andersen sees attractive opportunities in this industry, or they would have deployed their capital elsewhere. “The acquisition of Silver Line by Andersen was in keeping with other acquisitions in the industry, where an expansion of the product line is a primary goal. Also, Silver Line offers products at lower price points than Andersen, allowing Andersen to pursue a much wider range of customers in the industry. This transaction was unique, though, in that it involved a materials crossover, with a wood window company buying a vinyl window company.” While many smaller manufacturers may look at Andersen and say, “this won’t affect me,” Collins disagrees. “With the industry’s largest companies and professional investors like private equity funds buying companies at a rapid pace, it becomes more and more important for small and medium companies to study and adopt the best practices in the industry,” he says. “It is not possible to beat these large consolidators with scale, so companies must focus on dominating product niches and providing exceptional customer service.” Fortune Brands/Simonton Windows Andersen wasn’t the only company making acquisitions this year. Fortune Brands acquiring Simonton was another big story in 2006, but this one was a bit different as Simonton’s acquirer was a holding company. But not just any holding company—one with a strong record of earnings growth and marketing power. Already a strong player in the industry, it will be interesting to see how the new ownership will affect Simonton. Chris Monroe, vice president of marketing for Simonton, thinks the transition to new ownership has been positive. He should know as Monroe has worked for other companies acquired by holding companies. “Fortune is very focused on growing the business [Simonton]. They are very aware of the needs of homeowners,” he says. “The key thing that is different from other companies I worked with is that they have brought best practices to the table. Other companies have come in and made major changes, etc., but that wasn’t the case here.” Other pluses include a decentralized management model, and the fact that Simonton can tap into the resources of other companies within Fortune, such as Therma-Tru. “We didn’t have that with SBR [former owners],” says Monroe. Why was Simonton an attractive prospect for Fortune? Our first priority is internal growth,” says Clarkson Hine, vice president of corporate communications at Fortune Brands. “Over time we see opportunities to add to our home improvement businesses. Simonton was the logical next step.” He adds that Simonton’s focus on vinyl windows was attractive as this material now leads the industry. “This segment is fragmented so there is growth potential for strong innovative brands,” says Hine. And, Simonton is definitely thriving. Monroe says the company is experiencing significant growth in the coastal markets. “We just introduced a new vinyl, impact-resistant patio door line,” he says. “We are seeing the shift toward vinyl in coastal markets as many of these states are pushing for more energy-efficient products … but aluminum is still a viable option.” Monroe adds that the company is also experiencing a great deal of growth in the replacement market. When speaking about Simonton’s evolution, Monroe says the company grew very rapidly. “We were the first to deliver a seven-day turnaround of custom products. They [Fortune] recognize our competencies. They have taken an aggressive company and infused it with a Fortune Brands focus. They have enhanced what was already in place. “It has been smooth so far—no bumps in the road yet,” says Monroe. Georgia Gulf Corp./The Royal Group Georgia Gulf, North American manufacturer and international marketer of commodity chemicals, custom and other vinyl-based building and home improvement products, purchased Royal Group Technologies Limited last year. The company issued a press release at the time of the acquisition, stating that “Through the acquisition, Georgia Gulf has become well positioned in the PVC building materials industry, with its advanced raw materials technologies available to assist Royal Group with new product development initiatives.” Georgia Gulf, which declined to be interviewed for this article, made debt reduction a priority following the acquisition. On November 6, 2006, (one month after the acquisition was finalized), the company announced that it redeemed Royal Group’s outstanding Medium-Term Notes, with approximately $115 million paid to noteholders on November 3, 2006. The payment to noteholders was inclusive of principal, the premium to par value associated with the redemption and accumulated interest. The company also said it expected proceeds from divestitures of Royal Group’s non-core assets to be worth approximately $98 million during the fourth quarter of 2006. The sale of Royal Group’s Polish operations was concluded in October of last year, with divestitures of Royal’s Canadian distribution center and U.S. window covering manufacturing plants scheduled to close before the end of 2007. “Cash generation and debt reduction remain our primary focus,” said Ed Schmitt, Georgia Gulf’s chairman, president and chief executive officer. “We are rapidly pursuing opportunities to sell unproductive assets, reduce working capital and secure operating synergies.” While simplifying its debt, the company is also working at simplifying a few other things at Royal Group Technologies, one being its name. On February 5, Royal Group Technologies Limited became Royal Group Inc. The simplified name adds more emphasis to the fact that Royal is a Group, which we are increasingly bringing together to harness the strength of the entire organization, including its extensive product distribution network,” said Schmitt. Royal Group has also adopted five divisional brand symbols to accompany its numerous product brands in marketing communication materials. These divisional brand symbols embody the trademarked Royal crown symbol as well as the name Royal so all products are readily recognizable as Royal Group’s. “Great Ideas Taking Shape” will be the tag line accompanying the divisional brand symbols, highlighting that Royal Group strives to develop products that are innovative. “We want the industry to know that our strategic focus encompasses development of innovative, durable, low-maintenance, building, construction and home improvement products,” said Schmitt. The Young Up Start Vista Windows A reported “slowdown” in the housing market isn’t part of the story at Vista Windows. Dan McCarthy, chief executive officer, puts it simply. “Even if the market ‘slows down’ we refuse to participate in a recession.” And refuse he has. In fact, he reports that for the first two months of 2007 Vista is up by more than 75 percent over last year’s sales. For 2007 Vista expects a 40 to 45 percent increase over last year. But Vista was never one to shy away from a challenge, even since its inception. The Ohio plant serves 15 states and focuses on the remodeling market. “When we started the Ohio plant people said, ‘Why are you putting a window plant smack in the middle of numerous other plants?’,” says McCarthy. His response was simple. “Not enough companies are servicing customers how they should be serviced.” So, how is that exactly? At the Ohio plant, McCarthy says it operates on three to five-day manufacturing cycles. In addition, “the customer is at the center of our philosophy. We get intimately involved with our customer base.” It’s simple, according to McCarthy. “We’re growing because we are beating the competition in the marketplace,” he says. The company has now set its sights on the growing impact market, which McCarthy describes as a “marketplace within a marketplace.”A new plant in Swainsboro, Ga., opened in February and will serve the new construction market with impact-resistant windows. That plant will serve the Southeast and Coastal states. The company isn’t done expanding—not by a long shot. “When we started the company, we had a general plan to eventually have three to five more factories. We are already thinking of the third,” he hints, but refuses to elaborate. And while some companies may talk about cutting costs, closing plants and overall consolidations, Vista Windows is investing in highly-automated equipment in its new facility. “This is extremely important in the new construction market, when making stock sizes,” he says. While manufacturing time for the impact products will be in the two to three week range, McCarthy says some competitors are taking 12 weeks. “We’re quicker to the street.” But, again McCarthy stresses that what’s most important is serving the customer. “We do things consistently with integrity … We operate following what we call kindergarten business. We do things the way they should be done, such as promptly returning phone calls, etc.” If Vista continues on this route, many of those calls will likely be for more orders. The Best of Both Worlds Hurd Windows and Doors At Hurd, the fact that the company offers both vinyl and wood products bodes well for the future and keeps both divisions in the present. First, Hurd consolidated its three vinyl plants through a multi-million facility initiative focused on increasing efficiencies. The new facility, which opened in October 2006 in Orrville, Ohio, houses 200,000 square feet of space. The plant manufacturing lines consist of all new equipment as well as new processes, according to Dominic Truniger, president and general manager of Hurd. He adds that through the new plant, the company will now offer a broadened product offering. “We have made improvements to be more efficient, leaner and quicker to the marketplace which is important in a continued competitive environment,” he says. As with any company’s quest toward lean, many times this means a reduction in employees. In October the company announced the potential layoff of 103 employees but that figure was later revised to 35. “We plan for the worst and hope for the best without setting false expectations,” says Truniger. “By law we have to give enough notice for employees to prepare for their own personal well being.” He adds that many of the layoffs were anticipated due to the vinyl consolidation, but the figure was revised due to healthy growth in the wood market. “The wood business has done tremendously compared to the industry as a whole,” he says. “Hurd is focused on the higher-end wood market which has not been as affected by a slowed housing market. We are gaining market share.” Truniger points out that the company also hired 100 people at the new plant creating jobs in the Ohio area. “We want to get more products to the marketplace so potential customers have no reasons to buy from a competitor,” says Truniger. “There aren’t many companies such as ours that offer such a wide variety of products at multiple price points. Our challenge is to continue to make improvements.” Judging from Hurd’s success at the recent International Builders’ Show, it looks like the company has met that challenge. “Our customers have told us that we have done a fabulous job [in terms of new product introductions],” says Truniger. “The last 12 years we have been kind of sleepy regarding new products.” The company has definitely woken up.“I have never been at an IBS show where I literally have not been able to leave the booth. People now kind of see us as an up and coming company.” Or put another way—one to watch. The Model of Efficiency Gorell Windows and Doors Energy efficiency is the core message at Gorell Windows and Doors. As evidence of this, the company was the first window manufacturer to win the Energy Star® Sustained Excellence Award in 2006 and 2007 and was named its Energy Star partner of the year for four years in a row. This is an unprecedented accomplishment, according to president and chief operating officer Mike Rempel. There are a lot of reasons homeowners replace their windows, but the most important is to save energy, and we have made that our primary focus, he says. “We have a range of products to fit consumer’s energy efficiency needs depending on a variety of factors, such as geographic location, etc.,” says Rempel. “Or, if you want to combine energy efficiency with security, we have a product for that. The bottom line is that energy efficiency is at the top of our list.” He says there are many reasons the company has been successful in spreading this message. “We don’t just put Energy Star labels on windows,” he says. “We have an extensive process in place to train dealers to help them become certified and ensure that they understand that process and what it means to have an energy-efficient window. We are unique in that regard.” And, the company isn’t just focused on selling a window. It offers a cradle to grave marketing approach, including coloring books for kids teaching them what it means to save energy and how doing so will benefit the country. With such a focus on energy, it’s no surprise that the company recycles almost every component. “We sell our vinyl back to extruders, we sell our glass back and our cardboard is recycled. We even auction off our wood to employees,” says Rempel. “We try not to throw away anything we don’t have to.” But, even companies to watch have challenges. “Our sales were relatively flat in 2006,” says Rempel. “But based on our indications from vendors that’s a positive compared to many companies who posted a loss.” He adds that people have been leery to invest in their homes last year but says this may turn around. If the interest rates decrease, that will help boost window replacements in 2007, according to Rempel, whose business serves the remodeling market primarily. And if that happens Gorell’s dealers must be more prepared than ever to sell its products. In fact, Rempel says that what really sets the company apart from other manufacturers is that its dealers are highly-trained on how to sell the company’s products. “We help our dealers make more money. We’re not sure other manufacturers can do that.” Another stand-out characteristic is consistency. “Since our inception we’ve been able to maintain a consistent two-week lead time. Whatever the season, our dealers can always depend on that,” he says. As far as new products, the company introduced a new hurricane line at the recent Builders’ Show. “We can deliver that product in the same consistent time frame as our other products,” says Rempel. “For some other manufacturers that is a challenge.” Not that Gorell doesn’t face challenges, but they seem to be facing them head-on and emerging a winner. The Young Company with a BIG Spirit Crystal Windows and Doors Crystal Windows and Doors is still a teenager. It started less than 20 years ago by Taiwanese immigrant Thomas Chen, who had big plans for growth. In fact, the company says it plans to double its size in the next five years, and expand its presence outside of New York. Crystal produces vinyl and aluminum windows for both the residential and commercial market. For a relatively young company, Crystal has already undergone a huge executive change. Last year, Steve Chen, the son of founder, president and chief executive officer Thomas Chen, was named executive vice president. Steve Chen, a Penn State graduate, brings methodology to the business. He says he analyzes trends and has more of a traditional management style. “I’ve been working here since I was 12,” he says, adding that he cleaned floors, made windows and took on many other duties in the facility over the years. “Most of the team embraced the change, but there is an age gap, since I’m in my late 20s.” Chen says Crystal’s broad product line makes the company unique. “We’re a one-stop shop for our customers. Lots of people like that advantage, and our staff is experienced and can switch their hats around.” Crystal is also strong because it is still a family business. “My father immigrated here with $2,000 in his pocket, so he understands what it’s like to start a business. We can relate that to our customers.” The deep-rooted desire for success is apparent in the company’s new developments. “We’ve always been focused on replacement, but we’re starting to build our new construction market. We’re growing our national presence in states outside of New York, because New York is too saturated,” says Chen. Chen explains why the company has not suffered from the slowdown in the housing market. He says that the new construction and replacement markets are typically reciprocal, meaning that when one market suffers the other typically has an upturn. “There’s been a slight increase in our replacement business since the housing market took a downturn.” Options, options, options. This is where the company says it excels. “The residential lines have expanded a lot, with specialty windows, architectural shapes, etc. There are more options for customers and more specialty items,” says Chen. “We’re still a young company and all of our products are relatively new in the market. We’ve added onto our lines, but we haven’t discontinued a product line because we’re still new,” he says. “We plan to introduce a new impact-resistant product later on this year,” he says, adding that the line will include windows and patio doors. Crystal does not shy away from complicated situations. In fact, it sees serving both the residential and commercial markets as a huge advantage. (Approximately 60 percent of the company’s business is residential.) “The positive aspect is that production control is a lot easier, and we can keep our staff busy all year,” says Chen. “We can move our team much more organically on the production floor.” The downside is that things can be complicated with different products, Chen says. “We have a lot of different customers with different needs … It takes longer for our sales staff to be trained, and the sales staff has to be versatile.” Growing in all directions, Crystal is dabbling in development overseas. It is establishing production businesses in mainland China to serve the domestic construction market there. “The activities are very modest and in the initial stages,” says Bob Nyman, executive consultant. Currently, there is one factory producing aluminum windows for the Shanghai area, but it may produce vinyl windows in the future. When asked what DWM will be reporting about Crystal in the next five years, Chen answers, “to be double the size that we are now.” He says it aims to increase production levels to be more vertically integrated. The Diversifier Vinyl Window Designs Its variety of product offerings, commitment to education and loyalty to the future of the environment makes Vinyl Window Designs (VWD) a company to watch. “For being a modest size company, we’re aggressive,” says Phil Lewin, vice president. VWD serves both the replacement and moderate to high-end new construction industries, but approximately 90 percent of its sales is in the replacement market. Lewin says that the company, which sells to the United States and Canada, has not been impacted heavily by the slow down of the housing market. “We don’t feel that kind of shrinking in the replacement market,” he says, adding, “We still have markets yet to enter.” The company is competitive because its customers need a tremendous variety of products. It offers a wide range of window products in all sizes and shapes. “Our diversification is a strength and a weakness. We’re not the cheapest guys on the block, but the cheapest guys that offer a lot of options. For example, we sell four different spacers, all warm-edge,” says Lewin. The company has production lines that make sealed units with GED Intercept Spacer, PPG’s Stainless Spacer, silicone Superspacer and an Inex Spacer. “Each one has its positives,” he says. “We like to have the right peg to fit the nob, not a peg that fits every hole.” Lewin talks about the company’s roll away screens. “Ours is the only one that has a loop. When we have a high-end product, we try to make it something special.” Since the company distributes products to a wide area, there are different markets and different distributors that are addressed. “In the United States, there are markets where we have distributors and markets where we sell directly.” “Territorial integrity,” is the phrase Lewin has coined and is what he focuses on. “You can’t do something that undercuts the distributor.” The company is also unique because it spends a lot of money on education. It recently sponsored the Reno-Connect Seminar Program, which took place this month in Toronto. It has funded three speakers for the program and has bought and distributed 65 of the total 120 seats to its customers, reports Lewin. “We’re tied into trying to make the industry work better.” Another reason to keep an eye on this company is because it is on the forefront of energy conservation in North America. The company was named the Window and Door Canadian Energy Star manufacturer of the year last year. When asked about global warming, Lewin says “climate change” is a very big issue that the company has embraced. “Forty percent of the dealers in Canada who are registered Energy Star dealers sell our windows,” he says. What can we expect to see from Vinyl Window Designs in the next five years? Lewin says that the owners of the company want it to be more of a name brand recognized company—recognized as a real technological, research and development, quality leader. Suppliers to Watch—The Reinventers Truth Hardware Many companies roll out new ad campaigns, a new look, logo, etc., with the goal of promoting a new image. When Truth Hardware unveiled its new campaign, “A New Truth,” approximately one year ago, they weren’t kidding. The company pledged a more strategic focus toward the customer. Steve Groves, senior vice president of sales, marketing and new business development for the company puts it simply. “We were a market leader who became complacent.” He says many companies have suffered this plight—“the market leader syndrome.” This is where a company loses sight of the customer, maintains an inward focus, and thinks they have all the right answers. “We realized that we don’t know more. You have to talk to the customers to find out what they want,” says Groves. “About the time that we figured this out we performed market research and heard loud and clear that we weren’t the supplier we needed to be. We were arrogant and didn’t listen.” When Truth turned around, the customer noticed.“ Feedback from our customers is that there really seems to be a new Truth. We are thinking differently and providing products that we never would have in the past without moving away from this inward thinking,” adds Groves. Truth is doing many things it has never done before. Groves tells how prices for base materials went up in 2006. “The old Truth would have issued a price increase, but we are implementing a surcharge. When prices come down we will give this back to the customer,” he says. “The old Truth never would have done that.” While sometimes it is hard to gain back the trust of customers, Truth has been successful at doing just that. “We know that customers have noticed [our change] because in this down market we have gained market share,” says Groves. In addition to gaining the trust of existing customers, the company has gained new ones, as well as customers lost previously. “Our new formula is definitely working for us.” Another component of this winning formula is Truth’s renewed focus on its products. While Groves says that its concentration is on its customers—door and window manufacturers, the company also has to look beyond to the end-use customer. For example, Truth has learned that homeowners would like a more integrated and consistent look through the whole house so this is something the company is focusing on. In addition, Groves says a door or window manufacturer can now come to Truth with ideas and the company will get a sketch made, etc., as opposed to in the past where management didn’t always listen to input. “We are really good at product development,” says Groves. “You will see lots of innovative products in the coming year that is new to the industry.” We’ll be watching. Contact Industries An established supplier to door and window manufacturers, Contact Industries, recently changed its name from Contact Lumber to Contact Industries. There are many other transformations the company is experiencing as it becomes comfortable with its new identity. What makes this supplier unique is that it is willing to change and adapt its offerings to accommodate the needs of door and window manufacturers. It has invested heavily in equipment, machinery and people (company leaders credit the employees for the success), and is looking good for future growth and success. Although the new name went into effect on January 1, 2007, company leaders say it has been in the genesis of this change since 1996. “It makes more sense. The name change shows more about what we do and will continue to do as a company,” says Frank Pearson, president and chief executive officer. The company’s product offering has also evolved over the years. The organization began profile wrapping simple, three-side profile wrap moulding components with only oak and pine veneer in the mid 80s.“It’s been an evolution of sorts,” says Peter McKibbin, vice president of sales. “Over the subsequent years, our experience has broadened considerably to the point where today we profile wrap and flat laminate more than wood species veneers over a wide range of profiled substrates including softwoods, hardwoods, extruded and roll form aluminum and PVCs,” he adds. The company says it is unique because it doesn’t shy away from new ideas. “Our current customers see that we’re willing to be innovative in proposing optional constructions and materials to meet their product design goals and parameters. We have a number of years experience combining similar, and dissimilar materials to meet an end product application,” says McKibbin. The company is willing to look at combining, prototyping and testing a wide variety of materials (such as veneer, aluminum, PVC and lumber cores), to serve the manufacturer’s designs for fit, form and function. In addition to its willingness to be innovative, other strengths are its quality processes and attention to quality to get business and to keep business. “And, our investors are willing to invest where we see a strategic direction, and I believe our customers recognize that,” says McKibbin. The company recently invested in a new finishing line that will affect door and window manufacturers directly. The line is capable of applying either a painted interior finish in any color and applying stain and topcoat and UV, if specified. “We envision offering a window manufacturer not only a ready to assemble (RTA) window and/or door product but also the product could be completely prefinished,” McKibbin says. And although Contact is making significant investments, it has not been unscathed by the declining housing market. “Yes, there is little doubt our present business levels have flattened … However, we just returned from the International Builders’ Show and were pleased to see strong reception to a number of new programs and products we have had a hand in helping supply materials to, introduced by various door and window manufacturer customers. We anticipate these introductions may keep us busy through the first quarter [of 2007],” says McKibbin. “For our organization [the present market] hasn’t fallen, it’s flattened, and we anticipate it will continue to be flat for the next four months.” The success of Contact Industries is a reflection on its great team, company leaders say. The internal manufacturing group continues to be very supportive in its willingness and training to support the transformation of the organization’s order file. “It is especially gratifying to work with them, and to have strong support from them for this direction we were taking,” says McKibbin.
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