State of the Market 

Macroeconomic uncertainty did not seem to stall mergers and acquisitions in the window and door industry in 2022, where deals continued at a steady pace, pointing to positive sentiment in underlying long-term market fundamentals.  

A steady 2022 

In November 2022, Masonite International announced the purchase of Endura Products for $375 million in an all-cash deal. The manufacturer reported net sales of approximately $270 million for the 12 months ended September 2022. “We are thrilled to welcome the Endura team to the Masonite family,” said Howard Heckes, president and CEO of Masonite. “The combination of our two companies is a natural fit that will allow us to accelerate our Doors That Do More strategy and maximize our growth potential.”    

PGT Innovations acquired Martin Door Manufacturing in October 2022 from Black Oak Capital Partners for $185 million. With the acquisition, PGTI enters a new market of garage doors and broadens its geographic footprint and brand presence in the Western region, complementing window and door brands Western Window Systems and Anlin Windows & Doors. CEO Jeff Jackson commented on PGTI’s “great success” in expanding its geographic footprint and product portfolio over the past several years, with Martin continuing that trend. “As we looked to expand beyond our existing window and door market, we wanted to ensure we could leverage our team’s extensive knowledge in the area of protecting the envelope of homes and buildings. The garage door entry market aligns extremely well with that strategy,” said Jackson. 

Private equity has made substantial investments in the window and door industry, underscored by the take private of Cornerstone Building Brands. Acquirer Clayton, Dubilier & Rice completed the $5.4 billion transaction in July. Commenting on the deal, J.L. Zrebiec, partner at CD&R, said, “We firmly believe that the company is uniquely positioned to expand on its position as the largest manufacturer of exterior building products in North America, and we look forward to working together to build on the significant momentum underway.”  

In November 2022, Santiago Investment Group acquired a majority interest in Sprouse Windows and Doors. The West Virginia-based company manufactures energy-efficient vinyl windows and doors for the new residential construction and residential remodel markets. The partnership is expected to fuel growth with investment in modernizing equipment and employee engagement.  

Softening ahead 

We are closely monitoring the macro environment, which has been impacted by softening in the housing market and the broader economy.  

After weak performance in 2022, the National Association of Home Builders projects housing starts to decline again in 2023 (9.4 percent decrease in single-family starts) before rebounding in 2024, with forecasted growth of 16.8 percent, according to October estimates. Interest rates continue to pressure affordability with the 30-year mortgage rate rising to 6.9 percent in October, up from 3.45 percent in January 2022. 

While the repair and remodeling market is seeing slowing expansion, growth will remain positive through much of 2023. The Harvard Joint Center for Housing Studies revised its estimates downward in July with the growth rate decelerating from 15 percent in Q1 2023 to 6.5 percent in Q3 2023. “While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5 percent,” said Abbe Will, associate project director of the Remodeling Futures Program. “In the first half of 2023, annual remodeling expenditures are still set to expand to nearly $450 billion.”  

Valuation multiples have contracted given the recent volatility in the public equity markets. The BGL Window and Door composite has seen the median EBITDA decline from 10.5x in Q4 2021 to 6.8x in Q3 2022.   

Notwithstanding these obstacles, public industry players are reporting strong performance and a favorable demand outlook with positive trends in new orders and backlog. Labor and supply chain present near-term headwinds.  

PGT Innovations reported organic growth of 17 percent in its FQ3 2022 quarter, supported by outsized growth (38 percent) in its Western segment, which is seeing the benefits of the Anlin acquisition. The combination of pricing actions that have successfully offset inflationary pressures and manufacturing process enhancements resulted in significant margin gains.  

In its FQ3 2022 earnings call, Jeld-Wen reported 13 percent revenue growth over 2021 with all segments positive in core revenue growth. North America led its regions with a 23 percent increase in core revenue in the third quarter. The window and door space has “attractive and durable drivers of long-term growth,” according to Jeld-Wen Chairman David Nord. Interim CEO Kevin Lilly stated, “We are positive on the intermediate and long-term demand potential in each of our end markets that remained underbuilt for both new residential homes and existing homes that are increasingly in need of renovation.”  

“We remain strong believers in the medium- to long-term market opportunity, underpinned by attractive demographics and a significant shortage of U.S. housing,” said Nicholas Fink, CEO of Fortune Brands Innovations, in the company’s FQ3 2022 earnings call, in which the company also reported a “very strong third quarter” with 20 percent EPS growth and improved margins across all segments.   

Masonite International reported strong year-over-year growth in the third quarter with net sales up 12 percent; net sales for the North American Residential segment grew 19 percent year-over-year.  

Looking ahead, we expect the M&A market to exhibit caution particularly in cyclical industries like building products, which has seen the pressures of a near-term housing market slowdown exacerbated by rising mortgage rates, inflation, declining consumer confidence and difficulties within the supply-chain. Many of the publicly traded building products companies have seen their trading values decline and have adjusted their views on valuations for acquisitions. While industry players continue to pursue acquisitions that are in line with their long-term strategies, there is downward pressure on valuations. Some of the larger strategic acquirers are nearing the final stages of integration on transactions completed in 2021 and 2022, which could free resources to aggressively focus on new deals.