M&A: Bullish Outlook

The Bottom Line: M&A activity in 2024 is expected to significantly exceed 2023 levels, with both corporate and private equity buyers showing renewed interest.

Last year was a quiet year for M&A in the window and door industry. Following a period of robust brand consolidation from 2018 to 2022, many leading window and door companies sat on the sidelines in 2023 as they weighed the potential impact of rising mortgage rates and high home prices on their performance. In lieu of completing new acquisitions, many industry participants spent the year focused on enhancing operating performance and integrating recent acquisitions. 

BGL attended the 2024 International Builders’ Show this February and met with many market participants to discuss company performance and to gauge their interest in M&A. Common themes we heard include:  

2023 proved to be a better-than-expected year in terms of industry performance. Despite interest rates surpassing 5%, new residential construction remained relatively stable (1.3 million to 1.5 million starts) throughout the year. Most companies saw their performance fall within a range of -5% to +5% versus the prior year on a revenue basis.  

Corporate development teams were clearly optimistic, indicating they had a renewed interest in M&A in 2024, particularly with the expectation of interest rate cuts this summer and as consumer demand for new housing remains strong.  

2024’s marquee start

Positive sentiment is supported by two marquee deals already announced in 2024, both at meaningful premiums:

1. Owens Corning acquires Masonite

In February, Owens Corning announced it was acquiring Masonite in a transaction valued at $4.3 billion, representing a 38% premium to Masonite’s stock price the day before the announcement. The transaction implies a purchase multiple of approximately 8.6x Masonite’s consensus 2023 adjusted EBITDA. Masonite, a manufacturer of doors and door systems for the repair and remodel and new construction markets, operates 64 manufacturing and distribution facilities primarily in North America. Owens Corning called the proposed acquisition “transformative,” and with the addition of doors to its product offering, it will establish a scalable new growth platform in a large addressable market while advancing its strategy to expand into adjacent building material categories. 

“Masonite is a market leader that complements our existing residential interior and exterior product offering and has consistently demonstrated top-line growth and margin expansion,” says Owens Corning CEO Brian Chambers. “The combination of our commercial, operational and innovation capabilities allow us to accelerate our long-term enterprise growth strategy with a clear line of sight to meaningful synergies and increased cash flow generation.” The transaction is expected to close mid-year. 

2. Miter acquires PGT Innovations

In January, window and door manufacturers Miter and PGT Innovations reached a definitive agreement to merge in a deal valued at $3.2 billion in enterprise value, representing a 60% premium to PGTI’s stock price the day before the announcement (11.4x EBITDA). Miter and PGTI bring together a product mix and geographic presence that are “highly complementary” says Miter CEO Matt DeSoto, speaking to the transaction merits. Miter’s brands include MI Window and Doors, which supplies the Eastern U.S., and Milgard, which the company acquired in 2019 to expand into the Western U.S. PGTI brings a strong offering in impact-resistant windows and doors and a leading presence in the Southeast. The deal will be financed partly by an equity investment from Koch Equity Development, the investment and acquisition arm of Koch Industries, marking the third equity investment for the sponsor since 2019, says KED Managing Director Richard Hunt in the press release announcing the transaction. The transaction is expected to close mid-year. 

Private equity firms make moves

In addition to corporate activity, private equity firms are looking to benefit from a first-mover advantage and invest in the highly fragmented window and door market while valuations are still at reasonable levels. Supporting this activity is a lender base that has begun to warm up to the building products industry after spending much of 2023 reluctant to invest at meaningful levels. 
In March, Cornerstone Building Brands announced it was acquiring Harvey Building Products, a maker of windows and doors under the Harvey, SoftLite and Thermo-Tech brands. In addition to a strong manufacturing and distribution footprint in the Northeast and Midwest, Harvey brings a “… strong reputation as a premium R&R manufacturer,” says Cornerstone CEO Rose Lee, speaking to the transaction merits. 

Harvey was previously backed by Dunes Point Capital, which acquired the company in 2015. Harvey follows the December announcement of Eastern Architectural Systems, a manufacturer of impact-resistant window and doors serving the Florida R&R market. The acquisition of Eastern Architectural “… advances our strategy to increase exposure to high-growth regions with value-add products,” says Lee. Cornerstone is a portfolio company of Clayton, Dubilier & Rice, which it acquired in 2022 in a take-private transaction.

Looking ahead

In summary, we expect M&A activity in 2024 to significantly exceed levels of 2023, with both corporate and private equity buyers showing renewed interest. In particular, the acquisition of large assets such as Masonite and PGTI suggests a bullish long-term outlook and will catalyze broader M&A. Further, increased lender appetite and the prospect of interest rate cuts will serve to boost acquisition financing and provide much-needed liquidity to the market.