BGL Industrials Insider Jun 15 - sagacorporate.nosagacorporate.no/wp-content/uploads/2016/05/20150622_BGL... · PitchBook 2Q15 U.S. Middle Market Report, which reported that $359.7

The BGL Industrials Insider is published by Brown Gibbons Lang & Company, a leading independent investment bank

serving middle market companies throughout the U.S. and internationally.

Insider

Industrials / Building Products

Spotlight:Window of Opportunity in Building Products Page 4

Building products is seeing M&A activity accelerate on the heels of sustained economic growth, strong consumer sentiment, low interest rates, and a corresponding rebound in the construction market. The fragmented window and door industry is among the sectors seeing a healthy uptick as participants seek consolidation opportunities to expand manufacturing footprints and capabilities, broaden product

portfolios, and enhance margins.

June 2015Brown Gibbons Lang & Company

ChicagoOne Magnifi cent Mile980 N. Michigan AvenueSuite 1880Chicago, IL 60611

ClevelandOne Cleveland Center1375 East 9th Street Suite 2500Cleveland, OH 44114

bglco.com

Environmental Services Insider

M&A and Capital Markets ActivityBuilding Products

• Building Products is seeing healthy deal fl ow on positive momentum in the construction market. Marquee deals involving corporate and private equity acquirers are indicative of an active M&A market and likely harbingers of continued consolidation.

• Ply Gem Holdings (NYSE:PGEM) acquired Simonton Windows from Fortune Brands Home & Security (NYSE:FBHS) and PGT (NasdaqGM:PGTI) acquired CGI Windows and Doors. The acquisition of Norcraft Companies by Fortune Brands Home & Security (NYSE:FBHS) and ProBuild Holdings by Builders FirstSource (NasdaqGS:BLDR) are among other notable corporate transactions.

• Private equity sponsors gained the spotlight with Altus Capital Partners (GED Integrated Solutions), Nautic Partners (Custom Window Systems), and Audax Group (Chase Doors) among the investors to add platforms in the windows and doors space. Bellwether transactions include the proposed merger of Stock Building Supply Holdings (NasdaqGS:STCK) and Building Materials Holding Corporation, Platinum Equity’s acquisition of PrimeSource Building Products, and the purchase of Hanson Building Products by Lone Star Funds.

Broad Market

• 2015 appears off to a strong start for deal making in the middle market.1 M&A volume (based on number of transactions) increased 30 percent over 1Q14 levels on 23 percent higher value.

• Private equity deal fl ow is keeping pace with 2014 levels, according to the PitchBook 2Q15 U.S. Middle Market Report, which reported that $359.7 billion was invested in 1,791 deals during the fi rst quarter. By comparison last year, total deal value was up 21 percent over 2013, while counts were up 24 percent. The middle market accounted for 78 percent of all private equity buyouts—up from the record high 72 percent logged in 2014.

• Leverage multiples experienced a modest contraction in 2015 but remain elevated in the current valuation environment. Reporting on the broader middle market2, S&P Leveraged Commentary & Data cited a median EBITDA multiple of 10.24x through the May year-to-date period—up from 9.69x in 2014. Senior debt multiples (senior debt to EBITDA) decreased to 4.86x from 5.13x in 2014.

• S&P LCD reported senior leverage of 4.66x for leveraged buyouts in the lower middle market. Purchase price multiples for the May year-to-date period increased to 8.9x and 8.8x for strategic and fi nancial buyer transactions, respectively.

1 Middle market defi ned as enterprise values between $25 million and $500 million.

2 Defi ned as issuers with EBITDA of $50M or less.

For more information on how

BGL’s Global Industrials Practice can assist

your company, please contact:

Delivering Results to the Global Middle Market

Andrew K. Petryk Managing Director & PrincipalHead: Industrials216.920.6613

[email protected]

Kevin H. SargentDirector & Principal216.920.6639

[email protected]

• Supply of capital continues to outstrip loan demand, leaving lenders dissatisfi ed with volumes during the quarter. More than 90 percent of participating lenders in Thomson Reuters LPC’s 2Q15 Middle Market Lender Outlook survey were unable to meet lending goals in 1Q15, attributing the shortfall to aggressive structures and tight pricing.

Public Equity Markets

• The public equity markets remain volatile amid uncertainty in the global economy and energy market. BGL Building Products composite indices outperformed the broader market year-to-date: Residential-Focused (10.9 percent), Commercial-Focused (9.3 percent), Distributors (7.5 percent), Aggregates and Cement (12.7 percent), and Home Builders (7.6 percent). Broader market indices rallied last week on indications of the Fed slowing rate hikes, with returns on the S&P 500 and DJIA regaining to 2.5 percent and 1.0 percent, respectively.

*As of June 19, 2015.

Operating Highlights• Total housing starts rose to an annualized level of 1.0 million units in 2014

and are forecasted to surpass 1.1 million units in 2015. Nonresidential construction is expected to see continued growth from strong commercial, industrial, and institutional demand.

• May’s positive PMI reading marked the 29th consecutive month of expansion for the U.S. manufacturing sector. The overall economy grew for the 72nd consecutive month.

• Macro indicators of economic growth, declining unemployment, and low gasoline prices are expected to buoy consumer confi dence and fuel construction spending, positives for the building products market.

Industrials Insider

The residential window and door industry is sized at

approximately $19.4 billion annually. New construction and

replacement and remodeling (R&R) expenditures drive

growth.

Window Market

New residential construction, comprising single family, multi-

family, and manufactured housing, accounts for 47 percent

of the window market. Window demand rebounded sharply

in 2012 from a 2009 low. Annual shipments grew by 6 million

units between 2011 and 2013, representing a compound

annual growth rate of 23 percent. Demand is forecasted to

grow at a CAGR of approximately 18.4 percent (in units)

between 2014 and 2016. Vinyl is projected to make up an

estimated 61 percent of all window shipments in 2016.

The replacement and remodeling (R&R) market represents

53 percent of overall demand for windows. R&R market

demand showed signs of stabilization in 2013 following

negative growth during the downturn. Demand is forecasted

Spotlight

Window of Opportunityin Building Products

4

19%

15%

8%

7%7%4%

4%4%

4%2%

2%

24%

Anderson

Pella

Ply Gem (w/Simon

Jeld-Wen (excl. do

Marvin

Atrium

Associated Mater

Milgard (MAS)

MI Windows & Do

PGT

Champion Window

Other

Source: Equity Research.

Other

Residential Window Market

The competitive landscape is comprised of local/regional players and national manufacturers who typically focus on branded products.

with

Building products M&A is accelerating on the heels of sustained economic growth and a rebound in the construction

market. The fragmented window and door industry is among the sectors seeing a healthy uptick as participants seek

consolidation opportunities to expand manufacturing footprints and capabilities, broaden product portfolios, and

enhance margins.

to grow 5.2 percent annually (in units) between 2014 and

2016. Vinyl market share is projected to account for 74

percent of all window shipments in 2016.

Door Market

The replacement market accounts for the largest volume

of residential door shipments with a 48 percent share,

followed by new construction (31 percent) and remodeling

(21 percent). Residential door shipments grew a modest

5.4 percent between 2011 and 2013, or 900,000 units, to

9 million units. Demand is projected to grow at a CAGR of

approximately 8.3 percent (in units) between 2014 and 2016.

Steel is projected to make up an estimated 46 percent of all

door shipments in 2016. Fiberglass continues to gain share,

increasing from 28 percent to 38 percent between 2008 and

2013, driven by product improvements, builder preference,

and greater acceptance of the material across a wide range

of applications.

New construction accounts for 71 percent of the

nonresidential market for doors, followed by remodeling

(19 percent) and replacement (10 percent). Nonresidential

door shipments grew by 8 percent between 2011 and 2013,

or 300,000 units, to 2.1 million units. Demand is forecasted

to grow 16.1 percent annually (in units) between 2014 and

2016. Aluminum market share is projected to account for 52

percent of all door shipments in 2016.

Energy Effi cient Windows and Fenestration Systems

Programs such as ENERGY STAR are encouraging residential

energy effi ciency, with growing consumer awareness

of the benefi ts of high-performance windows spurring

manufacturers to expand their product lines.

Energy effi cient windows are the predominant window being

installed today, with ENERGY STAR comprising close to 90

percent of the replacement market and 59 percent of the

market overall. More stringent energy performance criteria

for windows will take effect in January 2016, pursuant to the

ENERGY STAR Version 6.0 Residential Windows, Doors, and

Skylights Specifi cation released by the U.S. EPA.

Industrials Insider


Spotlight

5

Vinyl, 61%

Wood, Fiberglass, Other, 22%

Aluminum, 17%

Source: Ducker Worldwide.

Vinyl, 75%

Wood, Fiberglass, Other, 24%

Aluminum, 2%

9.9 9.0 7.3 7.5 6.3 5.9 6.1 6.3 6.8 7.1

1.9 1.21.0 1.0

0.7 0.7 0.7 0.6 0.6 0.6

22.520.1

19.1 21.119.1 18.9 19.6 20.4 21.4 22.5

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016P

Uni

ts (i

n m

illio

ns)

Wood, Fiberglass, Other Aluminum Vinyl

2016 Projected Market Share




Steel, 46%

Wood, 13%

Fiber Glass, 41%

Window Shipments for New Construction

Window Shipments for Remodeling/Replacement

7.2 5.1 3.1 3.5 3.3 3.5 4.0 4.6 5.5 6.4

4.43.3

1.9 1.7 1.8 2.5 3.1 3.64.4

5.0

13.2

9.7

6.3 6.7 6.68.6

10.612.7

15.817.9

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012 2013 2014P 2015P 2016P

Uni

ts (i

n m

illio

ns)

Wood, Fiberglass, Other Aluminum Vinyl

Residential Door Shipments

Nonresidential Door Shipments

1.4 1.2 1.1 1.0 0.9 1.1 1.2 1.3 1.4 1.5

3.42.9 2.9 3.1 3.0 3.0 3.4 3.8 4.3 4.7

7.9

6.34.5 4.8

4.2 4.34.4

4.75.1

5.3

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014P 2015P 2016P

Uni

ts (i

n m

illio

ns)

Wood Fiber Glass Steel

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.10.2 0.2 0.2 0.1 0.2 0.1 0.2 0.2 0.2 0.2

1.3 1.3 1.10.9 0.9 0.9 0.9 1 1.2

1.6

0.8 0.80.7

0.8 0.7 0.80.9

1.01.1

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2008 2009 2010 2011 2012 2013 2014P 2015P 2016P

Uni

ts (i

n m

illio

ns)

Other Wood Aluminum Steel

Steel, 39%

Aluminum, 52%

Wood, 6% Other, 3%

Industrials Insider

M&A Market ActiveImproving market fundamentals point to continued

strength in the building products sector, with growing

investor appetite that is broad-based, spanning both

residential and commercial construction end markets.

The M&A market for building products saw the beginnings

of a rebound in 2012, with the pace of investment activity

accelerating as the economy strengthened. Investors

shifted from a value-oriented approach to acquisitions early

in the recovery to the full valuations observed in the market

today as companies returned to a path of profi tability and

growth.

Marquee deals announced in 2015 evidence healthy

interest from both corporate and private equity buyers. A

continued strong capital markets environment and a sense

of urgency for private equity funds to deploy capital should

propel deal fl ow in the coming months.

Historical Building Products M&A Activity

29

17

25

31

23 23 23

11

20

11

22

16

2522 23

16

23

3028

21

30

39

17

32

28

24

28

20

16

28 2826

19

0

5

10

15

20

25

30

35

40

45

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

2007 2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f Tra

nsac

�ons

Source: S&P Capital IQ.


Spotlight

Cement Assets of

SELECTED RECENT TRANSACTION ACTIVITY IN BUILDING PRODUCTS

APRIL 2015

APRIL 2015

MARCH 2015

MAY 2015

MARCH 2015

APRIL 2015

JANUARY 2015

TARGET ACQUIRER

JUNE 2015

JUNE 2015

APRIL 2015

SEPTEMBER 2014

SEPTEMBER 2014

MAY 2015

6

Industrials Insider

Spotlight


SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.

Enterprise Value: $111 million

Enterprise Value/Revenue: 2.5xEnterprise Value/EBITDA: ~8x-10x

CGI is a regional manufacturer of impact-resistant aluminum- and vinyl-framed windows and doors primarily serving the Florida residential market. Products are sold under the Estate, Sentinel, and Targa brands. The deal marks the largest acquisition in PGT’s 35-year history.

With the acquisition, PGT enhances its market position by gaining a major competitor, diversifi es and broadens its product portfolio with the addition of impact-resistant doors, and expands its manufacturing footprint and capabilities. PGT’s larger scale will enable the company to more eff ectively compete against national suppliers of storm

protection systems, said PGT President Jeff Jackson.

The acquisition underscores a bullish outlook on a sustained recovery of the Florida housing market. “The acquisition of CGI Windows & Doors is consistent with our stated growth plan to acquire revenue generating products that leverage our core capabilities,” said PGT CEO Rod Hershberger. “This is an ideal acquisition for PGT, and it will provide important synergies while enhancing our leadership position within the industry.”

CGI was a portfolio company of Cortec Group, which it acquired in 2007.

September 2014

Based in Columbus, Ohio, Simonton produces ENERGY STAR-qualifi ed vinyl replacement and new construction windows and doors, including a line of impact resistant products, at manufacturing facilities in West Virginia, Illinois, and California. Prior to the acquisition, Ply Gem’s sales were comprised of 80 percent new construction and 20 percent remodeling. With the addition of Simonton, Ply Gem establishes a stronger position in the repair & remodeling market, with the sales mix divided between remodeling (52 percent of sales) and new construction (48 percent), according to Plastics News.

“The addition of Simonton Windows is in full alignment with our strategic growth plan and will better balance the mix of end markets that we serve while strengthening our core capabilities and contributing signifi cantly to revenues in the future,” said

Ply Gem CEO Gary Robinette in a company statement.

The transaction follows the 2013 acquisitions of Canadian manufacturers Mitten and Gienow Windows and Doors. Mitten produces vinyl siding and accessories. Gienow manufactures windows and doors for the residential and commercial construction markets in Canada and the eastern United States. “With [the Gienow] acquisition we took the No. 2 and No. 3 window and door manufacturers in western Canada and combined them to make a clear No. 1 and the No. 2 player in all of Canada,” said Ply Gem CFO Shawn Poe, in an interview with Plastics News.

Gienow was a former portfolio company of VKR Holding, which it acquired in 2009. Mitten was acquired by Graham Partners in 2011.

Enterprise Value: $130 million

Enterprise Value/Revenue: .43xEnterprise Value/EBITDA: ~10.0x

September 2014

“Simonton’s strength in the replace and remodel

segment of the market combined with Ply Gem’s

strength in new construction are a natural combination.

Together the companies can now offer a more

comprehensive product portfolio, benefi t from an

expanded distribution network, and have a more

effi cient national manufacturing platform.”

Chris KleinCEO, Fortune Brands Home & Security

The fragmented window and door industry is seeing a healthy uptick in M&A activity as participants seek consolidation

opportunities to expand manufacturing footprints and capabilities, broaden product portfolios, and enhance margins.

Several acquisitions have been announced during the last 12 months, including Ply Gem Holdings’ (NYSE:PGEM) acquisition

of Simonton Windows from Fortune Brands Home & Security (NYSE:FBHS) and the purchase of CGI Windows and Doors

by PGT (NasdaqGM:PGTI).

7

Industrials Insider

SOURCE: S&P Capital IQ, PitchBook, Equity Research, Company Filings, and public data.

SELECTED M&A ACTIVITY IN WINDOWS AND DOORS

APRIL 2015

AUGUST 2014

MAY 2015

MAY 2015

AUGUST 2014

AUGUST 2014

JULY 2014

JULY 2014

JULY 2014

JUNE 2014

MARCH 2014

SEPTEMBER 2013

FEBRUARY 2013

JANUARY 2013

NEW NORTH TRIM

IWM ACQUISITION

KENNER AND COMPANY

2012 INVESTMENT

2009 INVESTMENT

2012 INVESTMENT

2010 INVESTMENT

2007 INVESTMENT

2010 INVESTMENT

2010 INVESTMENT

PRIVATE EQUITY INVESTMENT IN THE INDUSTRY


Spotlight

2013 INVESTMENT

2015 INVESTMENT

2014 INVESTMENT

2014 INVESTMENT

2008 INVESTMENT

2014 INVESTMENT

8

SEPTEMBER 2014

SEPTEMBER 2014

Industrials Insider

Spotlight


acquired by

a portfolio company of

acquired by

BGL Knows Windows Inside and Out


FinancialRestructuring

GED Integrated Solutions is a leading manufacturer of fully integrated insulating glass (IG) and window and door production systems in North America.

The company is the innovation and market share leader with the largest installed base of IG fabrication equipment in the United States, holding an estimated 49 percent market share.

Astro Shapes is a leading U.S. manufacturer of extruded aluminum products for use in the residential and commercialbuilding and construction, transportation, machinery and equipment, consumer durables, and industrial markets. The company also provides unmatched fi nishing capabilities through its electrostatic painting line and leading thermal barrier technologies, including its polyamide strip system, the fi rst of its kind in the United States.

Edgetech’s patented warm-edge insulating glass spacer systems are recognized as best-in class for energy effi ciency and durability.

The company markets its products to window and door manufacturersserving both the new construction and replacement markets in North America and internationally.

Empire Pacifi c Windows manufactures vinyl windows and patio doors for the residential and commercial construction markets throughout Oregon, Washington, California, and Nevada.

acquired by

Lumber & Building Supplies, Inc.

acquired by

acquired by

acquired

a subsidiary of

Castle HarlanPartners IV L.P.

(CHPIV)

acquired by

a subsidiary of

Kawada Industries USA

Pyramid LLC

RestructuringAdvisory

obtained

provided by

$37,000,000Replacement

DIP Credit Facility

Cerberus Partners

obtained exit financing

provided by

$30,000,000Senior SecuredCredit Facility

provided byan affiliate of

$30,000,000

Reorganized and Recapitalizedby an investment of

merged with

acquired

acquired

Admission to AIM£135 million market capitalization

£94 million raise

acquired acquired by

acquired by

acquired

acquired by

acquired

acquired by

acquired by

MinorityShareholders

divested

to

acquired by

Inpal acquired by


9

Industrials Insider


Spotlight

BarometerGrowth catalysts of improving employment and consumer

confi dence and low interest rates are providing lift to the

housing market. Real estate development is returning to

historical levels.

• Unemployment is at the lowest level since May 2008.

The unemployment rate fell to 5.5 percent in May,

down from 6.3 percent the year prior.

• Consumer optimism is high. The University of Michigan

Consumer Sentiment index averaged 94.6 during the

fi rst six months of 2015—the highest level since 2004,

according to the Survey of Consumers.

• Mortgage rates are at historical lows. Easing credit

conditions have driven mortgage rates down roughly

80 basis points from early 2014. Gradual rate increases

are anticipated in mid-2015 as the Fed increases its

target rate by ~50 basis points, according to economist

estimates.

The residential construction market gained ground in 2015

with total housing starts rising 20.2 percent to a SAAR of

1.135 million units in April—the highest level of production

since 2007—according to the NAHB. In May, total housing

starts increased 5.1 percent over 2014 levels to a SAAR of

1.036 million units.

Dodge Data & Analytics, in its 2015 Construction Outlook,

forecasts 11 percent unit growth in single family housing and

15 percent dollar growth in 2015. Multifamily is forecasted

to grow 7 percent and 9 percent in units and dollars.

10

5.8

4.6 4.74.5 4.6

5.0

5.5 5.45.6

5.8

2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016P

Mill

ions

of u

nits

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016P

Tot

al H

ousin

g St

arts

(in

thou

sand

s)

Interest Rates, Annual Averages30-year Fixed

Housing Starts

Total Home Sales

Fannie Mae

Freddie Mac

Source: Freddie Mac.

Source: U.S. Census Bureau.

Source: Freddie Mac.

6.3%

6.0%

5.0%

4.7%4.5%

3.7%

4.0%4.2%

3.8%4.0%

4.9%

2007

2008

2009

2010

2011

2012

2013

2014

May

-15

2015

P

2016

P

Industrials Insider

Spotlight


11

Barometer (continued)

The remodeling market is rebounding. Rising consumer

confi dence, appreciation in home values, and aging housing

stock are expected to fuel demand in the remodeling market,

which has outpaced the broader housing recovery according

to the Joint Center for Housing Studies at Harvard University

(JCHS). Spending levels rebounded to $300 billion in 2013,

with discretionary spending on large-ticket remodeling projects

seeing the fi rst increase since 2005. JHCS predicts the industry

could see record-level spending in 2015.

Repair and remodeling spending is expected to grow in the

coming years with increased demand for energy-effi cient and

sustainable building products and materials and accessibility

improvements for seniors.

Positive trends in the Architectural Billings Index (ABI)

and improvements in public spending support continued

momentum in the commercial construction market.

Nonresidential construction is expected to see continued

growth from strong commercial, industrial, and institutional

demand. The American Institute of Architects (AIA) reports the

highest growth in institutional activity, evidenced in March by

ten consecutive months of positive ABI readings in the sector.

The March commercial ABI reading refl ected the highest uptick

in billings of the last 18 months. Despite a dip in April, “The

fundamentals in the design and construction industry remain

very healthy,” indicated AIA Chief Economist Kermit Baker,

pointing to positive trends in new project inquiries and new

design contracts, refl ective of strong underlying demand for

design activity.

Dodge Data & Analytics, in its 2015 Construction Outlook,

forecasts 15 percent and 9 percent increases in commercial

and institutional building, respectively, in 2015. Robert Murray,

Chief Economist for Dodge Data & Analytics, commented,

“The construction expansion should become more broad-

based in 2015, with support coming from more sectors than

was often the case in recent years.” He continued, “The

economic environment going forward carries several positives

that will help to further lift total construction starts. Financing

for construction projects is becoming more available,....

interest rates for the near term should stay low, and market

fundamentals (occupancies and rents) for commercial building

and multifamily housing continue to strengthen.”

27%

58%

81%

35%

67%

81%

41%

71%

85%

Older than 40 years

Older than 20 years

Older than 10 years

2011

2001

1991

$214 $228

$280

$324

$291 $281

$298

$0

$50

$100

$150

$200

$250

$300

$350

2001 2003 2005 2007 2009 2011 2013

U.S

. Hom

e Im

prov

emen

t & R

epai

r Spe

ndin

g ($

in b

illio

ns)

Construction Spending

Repair & Remodeling Spending

Age of Owner-Occupied Housing Stock

Housing stock in the U.S. is aging, with the share of owner-occupied housing structures more than 40 years old ballooning to 41 percent in 2011 - up from only 27 percent in 1991.

The median age of a U.S. home was 35 years in 2011.

Source: U.S. Census Bureau.

Source: Joint Center for Housing Studies of Harvard University.

Source: National Association of Home Builders.

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

Jan-

2007

Oct

-200

7

Jul-2

008

Apr-

2009

Jan-

2010

Oct

-201

0

Jul-2

011

Apr-

2012

Jan-

2013

Oct

-201

3

Jul-2

014

Apr-

2015

Total Construc�on Residen�al Nonresiden�al

Industrials Insider

Spotlight


Opportunity

Millennials vital to the buildingproducts industry

The nation is undergoing a seismic demographic shift

as Millennials overtake Boomers as the largest living

generation, according to the Pew Research Center (PRC).

Citing statistics from U.S. Census Bureau forecasts, PRC

reported that Millennials (ages 18 to 34) are projected to

number 75.3 million in 2015, surpassing the projected 74.9

million Boomers (ages 51 to 69). By 2025, the Millennial

generation is expected to be almost 7 percent larger than

the baby boomer generation at comparable ages. Wielding

massive purchasing power, Millennials are expected to

eclipse Baby Boomers in spending power by 2018 ($3.39

trillion) according to Wakefi eld Research.

Realtor.com, in its 2015 Housing Forecast, predicts that

Millennials will account for 65 percent of fi rst-time home

buyer sales in 2015, as a growing economy increases

employment opportunities and low interest rates entice

new buyers to the market. Millennials are expected to drive

two-thirds of household formations over the next fi ve years.

Sustainability and healthy livingpoised for growth

Sustainable home improvements will be one of the fastest

growing market segments, according to the Joint Center

for Housing Studies at Harvard University. Demand for

products that promote energy effi ciency and healthy living,

particularly those addressing indoor air quality, water

conservation, or products made from rapidly renewable or

recycled materials, will continue to grow.

Participants in a March survey conducted by the American

Institute of Architects expect interest in sustainable

design to grow in the coming years, identifying energy

effi ciency (85 percent of respondents), healthy buildings

(60 percent), water effi ciency (60 percent), and renewable

energy (44 percent) among the top three priorities of

clients in fi ve to ten years.

12

Energy Effi cient Windows andFenestration Systems

Programs such as ENERGY STAR and Leadership in Energy

and Environmental Design (LEED) are encouraging energy

effi ciency in homes. More stringent state building energy

codes have contributed to the rise of residential energy

effi ciency, according to the U.S. Department of Energy,

which cited that more new homes are being constructed

to meet the targets of energy effi ciency programs. Nearly

50 percent of all home buyers cite energy effi ciency as

a primary consideration in home purchasing decisions,

reports the National Association of Realtors.

Motivated by tax incentives for energy effi ciency, more

consumers are investing in high-performance windows to

realize energy savings and lower utility bills, with growing

acceptance spurring manufacturers to expand their

product lines.

Energy effi cient windows are the predominant window

being installed today. ENERGY STAR market share was

at 59 percent nationally in 2008, according to the U.S.

Department of Energy ENERGY STAR Program Windows,

Doors, and Skylights Draft Criteria and Analysis, and close

to 90 percent in the replacement market.

Effective January 1, 2016, more stringent energy

performance criteria for windows will take effect, pursuant

to the ENERGY STAR Version 6.0 Residential Windows,

Doors, and Skylights Specifi cation released by the U.S. EPA.

Industrials Insider

13

BGL Building Products and Construction Materials indices defined on Pages 14 and 15.SOURCE: S&P Capital IQ.

Building Products Distributors Lumber and Wood Manufacturers

Aggregates and Cement Producers

Commercial-Focused Building Products ManufacturersResidential-Focused Building Products Manufacturers

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15

EBITDA 7.4x 8.4x 7.2x 6.7x 6.2x 6.8x 7.6x 6.6x 5.7x 7.7x 10.0x 11.5x 9.4x 8.8x 8.4x 10.9x 11.2x 10.2x 9.1x 7.9x 9.2x 12.1x 10.2x 12.5x 13.8x 14.0x 12.2x 12.2x 11.3x 11.5x 10.5x 11.1x 12.7x

Revenue 1.0x 1.1x 0.9x 0.8x 0.7x 0.8x 0.8x 0.6x 0.5x 0.7x 0.9x 0.9x 1.0x 0.9x 0.9x 0.9x 1.1x 1.0x 0.8x 0.9x 1.1x 1.1x 1.2x 1.3x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x 1.3x 1.5x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x




0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x




0.0x

0.1x

0.2x

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x




0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x




0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x




0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Homebuilders


Spotlight

Relative Valuation Trends

14

Industrials Insider

NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 6/19/2015.(2) Market Capitalization is the aggregate value of a firm's outstanding common stock.(3) Enterprise Value is the total value of a firm (including all debt and equity).SOURCE: S&P Capital IQ.

($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTM

Company Name Country Ticker Stock Price (1) 52W High Capitalization (2) Value (3) Revenue EBITDA EBITDA Revenue Gross EBITDA

RESIDENTIAL-FOCUSED BUILDING PRODUCTS MANUFACTURERS

American Woodmark Corp. United States NasdaqGS:AMWD 56.69 97.6% $902 $740 0.9x 10.7x 0.3x $825 18.5% 8.4%Armstrong World Industries, Inc. United States NYSE:AWI 54.75 91.4% 3,026 3,943 1.6x 10.9x 3.5x 2,477 24.1% 12.1%Gibraltar Industries, Inc. United States NasdaqGS:ROCK 20.90 97.8% 647 742 0.9x 11.6x 3.3x 872 16.2% 7.3%Griffon Corporation United States NYSE:GFF 16.03 89.7% 767 1,590 0.8x 9.8x 5.4x 2,033 23.4% 8.0%Headwaters Incorporated United States NYSE:HW 19.48 95.9% 1,437 1,932 2.3x 13.8x 4.0x 849 29.4% 16.6%James Hardie Industries plc Ireland ASX:JHX 17.95 99.4% 8,003 8,454 3.9x 17.1x 1.1x 1,657 34.9% 22.7%Masco Corporation United States NYSE:MAS 27.71 97.6% 9,632 11,971 1.4x 11.8x 3.9x 8,574 28.4% 11.8%Owens Corning United States NYSE:OC 40.08 87.7% 4,729 6,982 1.3x 9.9x 3.3x 5,205 18.4% 13.5%PGT, Inc. United States NasdaqGM:PGTI 15.15 98.7% 723 868 2.6x 16.8x 3.8x 339 30.7% 15.2%Ply Gem Holdings, Inc United States NYSE:PGEM 12.26 82.7% 833 1,865 1.1x 15.3x 8.6x 1,673 19.6% 7.3%Quanex Building Products Corporation United States NYSE:NX 20.12 92.3% 681 622 1.0x 12.9x 0.0x 604 21.1% 8.0%Compagnie de Saint-Gobain S.A. France ENXTPA:SGO 40.63 92.3% 22,965 30,591 0.7x 7.7x 2.7x 41,054 24.3% 9.6%The Sherwin-Williams Company United States NYSE:SHW 281.99 95.8% 26,278 28,745 2.6x 19.1x 1.7x 11,213 46.5% 13.4%Simpson Manufacturing Co., Inc. United States NYSE:SSD 33.93 88.8% 1,675 1,441 1.9x 11.4x 0.0x 760 45.4% 16.6%Trex Co. Inc. United States NYSE:TREX 51.97 90.0% 1,667 1,749 4.2x 19.2x 0.9x 412 36.5% 22.1%Median $27.71 92.3% $1,667 $1,865 1.4x 11.8x 3.3x $1,657 24.3% 12.1%

Mean $47.31 93.2% $5,598 $6,816 1.8x 13.2x 2.8x $5,236 27.8% 12.8%

COMMERCIAL-FOCUSED BUILDING PRODUCTS MANUFACTURERS

AAON Inc. United States NasdaqGS:AAON $23.35 92.8% $1,264 $1,221 3.4x 14.8x 0.0x $357 30.3% 23.2%Kingspan Group plc Ireland ISE:KRX 20.94 99.0% 3,692 3,852 2.0x 20.4x 1.8x 1,891 27.3% 10.0%Lennox International, Inc. United States NYSE:LII 110.35 93.2% 4,965 6,015 1.8x 15.1x 2.8x 3,358 26.7% 11.4%NCI Building Systems Inc. United States NYSE:NCS 15.72 72.5% 1,160 1,601 1.1x 20.4x 5.9x 1,437 22.3% 5.5%USG Corporation United States NYSE:USG 27.20 86.7% 3,954 5,947 1.6x 11.8x 4.8x 3,783 17.6% 12.2%Valmont Industries, Inc. United States NYSE:VMI 122.36 75.0% 2,882 3,391 1.1x 8.3x 1.9x 3,042 25.2% 13.5%Median $25.28 89.7% $3,287 $3,622 1.7x 13.3x 1.9x $2,467 26.0% 11.8%

Mean $53.32 86.5% $2,986 $3,671 1.8x 12.5x 2.3x $2,311 24.9% 12.6%

BUILDING PRODUCTS DISTRIBUTORS

Beacon Roofing Supply, Inc. United States NasdaqGS:BECN 31.65 92.2% $1,571 $1,774 0.7x 13.6x 1.7x $2,399 22.9% 5.4%Bluelinx Holdings Inc. United States NYSE:BXC 0.98 66.7% 88 551 0.3x 24.5x 20.9x 1,990 11.4% 1.1%Builders FirstSource, Inc. United States NasdaqGS:BLDR 13.69 97.4% 1,359 1,731 1.1x 30.3x 7.2x 1,629 22.5% 3.5%CanWel Building Materials Group Ltd. Canada TSX:CWX 5.90 90.1% 170 369 0.5x 12.8x 6.9x 769 11.8% 3.8%Huttig Building Products Inc. United States NasdaqCM:HBP 3.10 56.9% 77 154 0.2x 12.8x 6.4x 636 19.6% 1.9%Lowe's Companies Inc. United States NYSE:LOW 69.99 91.8% 65,279 75,110 1.3x 11.4x 1.7x 56,949 34.8% 11.5%Lumber Liquidators Holdings, Inc. United States NYSE:LL 20.71 26.8% 561 537 0.5x 5.5x 0.2x 1,061 38.5% 9.2%The Home Depot, Inc. United States NYSE: HD 112.43 95.3% 146,044 160,089 1.9x 12.8x 1.3x 84,380 34.8% 14.9%Watsco Inc. United States NYSE:WSO 123.92 94.5% 4,035 4,605 1.2x 13.7x 1.0x 3,991 24.4% 8.4%Wolseley plc Switzerland LSE:WOS 41.52 97.9% 10,808 12,067 0.9x 13.5x 1.8x 13,505 28.0% 6.6%Median $26.18 92.0% $1,465 $1,752 0.8x 12.8x 1.5x $2,195 23.6% 6.0%

Mean $42.39 81.0% $22,999 $25,699 0.9x 12.0x 1.3x $16,731 24.9% 6.6%

TTM Enterprise Value / TTM Margins

Spotlight



Industrials Insider

15

NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 6/19/2015.(2) Market Capitalization is the aggregate value of a firm's outstanding common stock.(3) Enterprise Value is the total value of a firm (including all debt and equity).SOURCE: S&P Capital IQ.

($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTM

Company Name Country Ticker Stock Price (1) 52W High Capitalization (2) Value (3) Revenue EBITDA EBITDA Revenue Gross EBITDA

LUMBER AND WOOD MANUFACTURERS

Canfor Corp. Canada TSX:CFP 26.19 82.0% $3,514 $4,023 1.1x 7.8x 0.8x $3,536 33.6% 14.7%Deltic Timber Corporation United States NYSE:DEL 67.91 97.3% 857 1,055 4.8x 22.3x 4.3x 220 29.7% 21.4%Louisiana-Pacific Corp. United States NYSE:LPX 17.42 93.5% 2,481 2,773 1.4x 266.7x 128.8x 1,962 8.4% 0.3%Norbord, Inc. Canada TSX:NBD 28.14 96.3% 2,402 3,004 2.1x 33.2x 6.7x 1,154 7.3% 6.2%Universal Forest Products Inc. United States NasdaqGS:UFPI 53.54 92.2% 1,070 1,270 0.5x 9.2x 1.5x 2,739 12.4% 5.0%West Fraser Timber Co. Ltd. Canada TSX:WFT 67.71 86.2% 5,656 6,186 1.5x 10.3x 0.9x 4,061 34.0% 14.8%Weyerhaeuser Co. United States NYSE:WY 32.57 87.9% 16,863 21,121 2.9x 12.5x 3.2x 7,388 21.7% 22.8%Median $32.57 92.2% $2,481 $3,004 1.5x 9.8x 2.4x $2,739 21.7% 14.7%

Mean $41.93 90.8% $4,692 $5,633 2.0x 10.0x 2.9x $3,009 21.0% 12.2%

AGGREGATES AND CEMENT PRODUCERS

Boral Limited Australia ASX: BLD $6.02 90.4% $4,612 $5,499 1.2x 11.5x 3.0x $4,452 27.8% 9.2%CEMEX, S.A.B. de C.V. Mexico BMV:CEMEX CPO $14.75 86.4% 188,156 439,340 2.1x 11.3x 6.4x 213,791 32.7% 18.2%CRH plc Ireland ISE:CRG $26.20 97.7% 21,494 24,141 1.3x 14.3x 3.6x 18,912 29.3% 8.6%Eagle Materials Inc. United States NYSE:EXP $78.65 74.4% 3,951 4,456 4.2x 12.8x 1.7x 1,066 23.8% 28.4%Grupo Cementos de Chihuahua SAB de CV Mexico bmv:gcc * $45.49 99.4% 15,127 20,871 2.0x 10.0x 3.3x 10,358 22.8% 20.1%HeidelbergCement AG Germany DB:HEI $71.27 92.4% 13,392 20,794 1.6x 8.9x 3.6x 12,938 58.3% 16.4%Holcim Ltd. Switzerland SWX:HOLN $69.20 84.8% 22,550 34,875 1.8x 9.1x 3.1x 18,994 44.8% 19.5%Lafarge S.A. France ENXTPA:LG $59.13 88.0% 17,021 28,835 2.2x 10.6x 4.5x 12,989 23.6% 20.3%Martin Marietta Materials Inc. United States NYSE:MLM $148.25 95.0% 10,004 11,530 3.9x 17.8x 2.4x 2,931 19.9% 22.1%Titan Cement Company S.A. Greece ATSE:TITK $19.55 77.2% 1,525 2,311 1.9x 13.8x 4.9x 1,190 24.9% 13.8%Vulcan Materials Company United States NYSE:VMC $89.29 95.9% 11,845 13,730 4.5x 22.1x 3.7x 3,051 20.7% 20.4%Wienerberger AG Austria WBAG:WIE $14.17 92.8% 1,657 2,514 0.9x 8.6x 3.6x 2,862 30.1% 10.3%Median $52.31 91.4% $12,619 $17,262 2.0x 11.3x 3.6x $7,405 26.4% 18.9%

Mean $53.50 89.6% $25,945 $50,741 2.3x 11.7x 3.7x $25,295 29.9% 17.3%

HOME BUILDERS

Beazer Homes USA Inc. United States NYSE:BZH $19.25 90.2% $528 $1,917 1.3x 34.0x 30.8x $1,466 16.9% 3.4%Cavco Industries, Inc. United States NasdaqGS:CVCO $74.17 84.4% 658 621 1.1x 14.7x 1.6x 567 22.3% 7.5%DR Horton Inc. United States NYSE:DHI $27.29 93.2% 10,005 13,288 1.4x 13.3x 3.9x 9,320 20.3% 10.7%Hovnanian Enterprises Inc. United States NYSE:HOV $2.71 51.0% 397 2,441 1.1x 22.4x 21.3x 2,164 17.1% 4.7%KB Home United States NYSE:KBH $16.37 86.2% 1,505 3,885 1.5x 24.1x 18.9x 2,588 17.4% 5.8%Lennar Corp. United States NYSE:LEN $48.64 90.6% 9,708 15,742 2.0x 14.7x 6.6x 8,061 23.1% 12.1%M/I Homes, Inc. United States NYSE:MHO $24.45 96.7% 600 1,160 0.9x 12.1x 5.7x 1,243 21.0% 7.6%MDC Holdings Inc. United States NYSE:MDC $30.08 97.5% 1,469 2,126 1.2x 20.8x 8.8x 1,755 17.3% 5.8%Meritage Homes Corporation United States NYSE:MTH $45.39 91.0% 1,798 2,675 1.2x 13.0x 4.7x 2,291 20.7% 9.0%NVR, Inc. United States NYSE:NVR $1,366.71 98.5% 5,556 5,634 1.2x 11.1x 1.2x 4,598 18.6% 11.0%PulteGroup, Inc. United States NYSE:PHM $19.99 85.6% 7,288 8,177 1.4x 11.3x 2.7x 5,837 23.4% 12.3%Ryland Group Inc. United States NYSE:RYL $46.03 92.7% 2,156 3,190 1.2x 10.4x 4.5x 2,643 21.7% 11.6%Standard Pacific Corp. United States NYSE:SPF $8.88 96.6% 2,445 4,608 1.9x 13.4x 6.5x 2,445 25.5% 14.1%Toll Brothers Inc. United States NYSE:TOL $37.71 93.5% 6,641 9,507 2.3x 17.9x 6.6x 4,114 22.7% 12.5%William Lyon Homes United States NYSE:WLH $24.96 79.5% 785 1,774 1.9x 22.5x 12.6x 944 19.9% 8.4%Median $25.87 90.4% $1,064 $2,283 1.3x 14.0x 4.7x $1,960 18.9% 6.6%

Mean $30.37 86.2% $3,109 $5,147 1.3x 15.8x 4.8x $3,396 19.4% 7.2%

TTM Enterprise Value / TTM Margins


Spotlight


16

Industrials Insider


Spotlight

Source: S&P Capital IQ.As of 6/19/2015.

By Sector

Overall Market

3% 1%

8% 6%

55%

40%

90%

73%

-20%

0%

20%

40%

60%

80%

100%

S&P 500 DJIA

Retu

rns

YTD 1 Year 3 Year 5Y

11% 9% 7%

-8%

13% 8%5% 3%

39%

7%

-10%

10%

66%

87%

114%

63% 69% 68%80%

123%

228%

127%

21%

126%

-30%

20%

70%

120%

170%

220%

270%

Residential-Focused BuildingProducts

Commercial-Focused BuildingProducts

Building Products Distributors Lumber and Wood Manufacturers Aggregates and CementProducers

Home Builders

Retu

rns

YTD 1 Year 3 Year 5Y

Sector Performance

Industrials Insider

Overall M&A Activity

Middle Market M&A Activity Private Equity Transaction Activity*

Mergers & Acquisitions Activity

Trends in Valuation

Acquisition Financing Trends

Total Leverage Equity Contribution

SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.*NA: Data not reported due to limited number of observations for period.*NA: Data not reported due to limited number of observations for period. SOURCE: Standard & Poors LCD.

SOURCE: Standard & Poors LCD.

Transactions with Strategic Buyers Transactions with Financial Buyers

Transaction Count by Deal Size

Middle market enterprise values between $25 million and $500 million. Middle market enterprise values between $25 million and $500 million.

EBIT

DA

Mul

tiple

Tota

l Deb

t to

EBIT

DA

EBIT

DA

Mul

tiple

Equi

ty C

ontr

ibut

ion

(%)

Middle Market M&A Activity Private Equity Transaction Activity*

SOURCE: PitchBook.

Transaction Count by Deal Size

SOURCE: S&P Capital IQ.Based on announced deals, where the primary location of the target is in the United States.Middle market enterprise values between $25 million and $500 million.

*Buyout activity only2015 data of 3/31/2015.

119

148

125

151

106

141

156

145

107

132

148

114

58 97 96 131

100

122

141

134

120 16

616

315

413

716

016

4 235

147

161

192

199

161 21

723

125

023

2

207 21

921

4 240

207 22

221

126

819

1 207 23

311

391

120

111

197

145 16

1 234

204

168

230

226

214

176 21

118

830

720

8 227 24

8 286

233

255 32

8 355

283

6566

5963

6267 63

6336

5843

1919

26 3540

3242

5861

5563 68

5342

54 5069

3946

6079

4982

7370

60

$0

$10

$20

$30

$40

$50

$60

$70

$80

0

100

200

300

400

500

600

700

800

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

2006 2007 2008 2009 2010 2011 2012 2013 2014 ‘15

Transaction Value ($ in billions)

Num

ber o

f Tra

nsac

tions

$25M-$50M $50M-$250M $250M-$500M Transaction Value

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Num

ber o

f Tra

nsac

tions

Under $25M $25M-$100M $100M-$500M $500M-$1B $1B-$2.5B $2.5B+

8.2x

6.8x 7.

1x

9.8x

8.0x

7.6x 7.7x

8.6x 8.7x

8.4x8.

7x

9.4x

8.4x

7.6x

9.2x 9.

5x

8.9x

8.7x

9.6x10

.0x

9.1x

10.2

x

8.2x

9.5x 9.7x

9.7x

8.5x

9.1x

8.8x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

<$250 million $250-$499 million $500 million+

7.2x

8.3x

6.5x 6.6x

6.3x

8.1x 8.

5x

8.2x

8.0x 8.0x

7.4x 7.

7x

7.7x

9.5x

8.5x

9.9x

9.4x

7.5x

8.5x

9.1x

8.7x

8.7x

9.9x

9.8x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

<$250 million $250-$499 million $500 million+

4.8x

5.4x

4.1x3.6x

4.1x 4.3x 4.5x4.7x 4.7x 4.8x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM2015

38%

35%

46%

51%

47%

43%41% 40%

37%

41%

25%

30%

35%

40%

45%

50%

55%

2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM2015

NA

*

NA

*

NA

*

NA

*

NA

*N

A*

NA

*

17

Global Industrials Practice

For questions about content and circulation, please contact editor, Rebecca Dickenscheidt, at [email protected] or 312-513-7476.

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BGL Industrials Insider Jun 15 - sagacorporate.nosagacorporate.no/wp-content/uploads/2016/05/20150622_BGL... · PitchBook 2Q15 U.S. Middle Market Report, which reported that $359.7