BUILDING PRODUCTSleaguepark.com/.../07/...Market-Update-April-2019.pdf · League Park Advisors is pleased to share its building products market update for April 2019. This report

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BUILDING PRODUCTSMARKET UPDATE | APRIL 2019

INTRODUCTION

League Park Advisors is pleased to share its building products market update for April 2019. This report provides analysis and commentary related to the following topics:

Current market news and observations

Trends in building products market valuations

Overview of merger and acquisition dynamics within the domestic building products market

We hope that you find our April 2019 edition helpful and invite you to contact us directly if you wish to discuss our perspective on current market trends or our relevant industry experience.

BUILDING PRODUCTS QUARTERLY MARKET UPDATE

League Park has developed substantial, directly-relevant experience executing transactions and conducting proprietary research across five primary sectors, as well as a broad spectrum of verticals.

OUR FIRM

League Park is a boutique investment bank that professionally and ethically advises clients on strategies aimed to maximize shareholder value. We assist middle market companies with transactions that generate value through mergers and acquisitions, recapitalizations, capital raising, structured finance, and outsourced corporate development.

BUSINESS SERVICES

CONSUMER& RETAIL

HEALTHCARE INDUSTRIAL TECHNOLOGY

Business Process Outsourcing

Data & Document Management

Facility Management

Industrial Services Specialty

Distribution Transportation &

Logistics

Consumer Products Consumer Services Direct Marketing Food Products &

Services Pet Products Retail

Benefits Management

Facility Services Healthcare

Distribution Healthcare IT Healthcare Products Healthcare Staffing Medical Devices &

Equipment

Automotive Building Products Capital Goods Construction Packaging Metals Niche

Manufacturing Polymers Specialty Chemicals

Big Data Analytics Business

Intelligence Mobile Applications Outsourced

Technology Solutions

Tech-Enabled Consulting

REPRESENTATIVE LEAGUE PARK BUILDING PRODUCTS EXPERIENCE

Sell-Side M&A Advisory

has been acquired by







Strategic Advisory

Strategic Advisory

1

RealityCapture, a set of tools that creates a “digital twin” of an actual environment, is being used in all stages of new construction projects to help documentation, project planning, daily confirmation of project progress, and adherence to design and code specifications. Using a combination of 3D RealityCapture and 3D simulation together, project managers can evaluate each stage of the construction project, including measurements to ensure the work is to specification and comparing project plans to actual builds. Following a project’s completion, the 3D representation can be offered to insurance providers, used for process improvements, and help assist in facility safety analysis.

3D REALITY CAPTURE IMPROVING CONSTRUCTION EFFICIENCIES

CONSTRUCTION DIVE MARCH 20, 2019

Prior to the trade war with China, the American Hardwood Export Council (“AHEC”) expected 60% of all American hardwood goods would be exported, with 54% going to China. The 10% tariff imposed on lumber, along with China’s struggling consumer confidence and credit shortage, has drastically lowered the forecast for American lumber exports. As a result, China’s volume of imported softwood products dropped 11% from 2017 to 2018. The United States’ imports of lumber products have also observed a shift in 2018 when the United States imposed a 20% tariff on Canadian wood products. With 91% of American lumber imports coming from Canada in 2018, supply was constricted, resulting in the price of 1,000-board feet rising above $500 in February of 2018 for the first time in United States history.

VOLATILE AMERICAN LUMBER PRICES THROUGH 2018

FREIGHT WAVES JANUARY 15, 2019

Emissions regulations set forth by the Paris Agreement are forcing the cement market to innovate with respect to its production process. As a result, the Global Cement and Concrete Association (“GCCA”) was started in January of 2018 to come up with a variety of approaches to reduce cement’s carbon footprint, including major changes to input materials and modifications to the manufacturing process. The group’s members account for approximately 30% of global cement production. One identified strategy to lower cement’s carbon emissions is carbon capture storage (“CCS”). CCS technology allows cement manufactures to capture carbon emissions at the source and inject them underground. Another way manufactures are reducing cement’s carbon footprint is by using waste-based alternative materials. For example, fly ash, a byproduct of coal production, can replace up to 30% of cement in concrete mixes, without compromising strength or durability.

EMISSIONS STANDARDS DRIVE CEMENT INNOVATION

GREENBIZ MARCH 25, 2019


IN THE NEWS

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Construction employment saw significant gains through 2018 and the first part of 2019 as 44 states observed an increase in construction jobs between January 2018 and January 2019. According to a Construction Hiring and Business Outlook Survey, four out of every five construction firms in the United States expect to add employees in 2019. 78% of the 1,312 firms that participated in the survey said that they have had a hard time finding employees and expect that trend to continue. With a limited number of potential employees that have the skill set to join the construction workforce, industry experts have issued concerns regarding the sustainability of the job increases.

CONSTRUCTION EMPLOYMENT SURGES

THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA FEBRUARY 12, 2019


ECONOMIC ANALYSIS

3

CONSTRUCTION SECTOR EMPLOYMENTFor the Ten-Year Period Ended March 31, 2019Employment in thousands

Sources: Bureau of Labor Statistics (BLS), FMI Corporation, National Association of Home Builders (NAHB), Organization for Economic Cooperation & Development (OECD), US Chamber of Commerce

RESIDENTIAL CONSTRUCTION INDEXFor the Ten-Year Period Ended March 31, 2019Confidence expressed on a scale of 0 to 100

COMMERCIAL CONSTRUCTION INDEXFor the Quarters Ended June 30, 2018 – March 31, 2019Confidence expressed on a scale of 0 to 100

CONSTRUCTION PUT IN PLACEFor the Years Ended and Ending December 31, 2012 – 2022P$ in millions

BUSINESS CONFIDENCE INDEXFor the Ten-Year Period Ended March 31, 2019Baseline confidence level is 100

COMMODITY PRICE INDICESFor the Ten-Year Period Ended March 31, 2019% change in producer price indices

95

96

97

98

99

100

101

102

103

104

105

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

10

20

30

40

50

60

70

80

90

100

Q2 2018 Q3 2018 Q4 2018 Q1 2019

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20190

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0%

25%

50%

75%

100%

125%

150%

175%

200%

225%

250%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Iron & Steel Copper AluminumPlastics Rubber PlywoodConcrete

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

2012 2013 2014 2015 2016 2017 2018 2019P 2020P 2021P 2022P


PUBLIC COMPARABLE ANALYSIS

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BUILDING PRODUCTS MANUFACTURING

MANUFACTURING GROUP FIVE-YEAR HISTORICAL STOCK PERFORMANCEAs of March 31, 2019Relative % change in closing prices

MANUFACTURING GROUP ONE-YEAR HISTORICAL STOCK PERFORMANCEAs of March 31, 2019Relative % change in closing prices

Source: Capital IQ

As of March 31, 2019$ in millions, except for share prices

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%General Manufacturers Window & DoorKitchen, Bath & Plumbing Building EnvelopeLighting FlooringS&P 500

50.0%

90.0%

130.0%

170.0%

210.0%

250.0%

2014 2015 2016 2017 2018 2019

General Manufacturers Window & Door

Kitchen, Bath, & Plumbing Building Envelope

Lighting Flooring

S&P 500

Building Product Manufacturing

Current % of Enterprise LTM LTM Margins Enterprise Value / LTM

Company Name Price LTM High Value Revenue EBITDA Gross EBITDA Revenue EBITDA

General Manufacturers:

Owens Corning $47.12 57.0% $8,513 $7,057 $1,276 23.4% 18.1% 1.2x 6.7x

USG Corporation 43.30 99.5% 6,762 3,336 430 18.2% 12.9% 2.0x 15.7x

Armstrong World Industries 79.42 99.9% 4,352 975 287 35.6% 29.4% 4.5x 15.2x

Continental Building Products 24.79 62.6% 1,035 528 151 28.0% 28.6% 2.0x 6.8x

Segment Median 81.1% $5,557 $2,156 $358 25.7% 23.3% 2.0x 11.0x

Window & Door:

JELD-WEN $17.66 54.6% $3,142 $4,347 $384 21.3% 8.8% 0.7x 8.2x

Masonite International Corporation 49.89 68.0% 1,968 2,170 257 20.1% 11.8% 0.9x 7.7x

PGT Innovations 13.85 52.5% 1,119 698 120 35.0% 17.2% 1.6x 9.3x

Quanex Building Products Corporation 15.89 78.3% 738 895 88 21.7% 9.9% 0.8x 8.4x


Kitchen, Bath & Plumbing:

Masco Corporation $39.31 94.1% $14,177 $8,359 $1,393 32.6% 16.7% 1.7x 10.2x

Fortune Brands Home & Security 47.61 78.9% 8,780 5,485 855 36.0% 15.6% 1.6x 10.3x

Mueller Industries 31.34 91.5% 2,214 2,508 214 14.3% 8.5% 0.9x 10.4x

American Woodmark Corporation 82.63 76.4% 2,062 1,644 239 21.2% 14.6% 1.3x 8.6x


Building Envelope:

NCI Building Systems $6.16 26.4% $3,736 $3,359 $132 18.9% 3.9% 1.1x NM

Apogee Enterprises 37.49 73.7% 1,237 1,403 117 20.9% 8.3% 0.9x 10.6x


Lighting:

Hubbell Incorporated $117.98 85.7% $8,044 $4,482 $720 29.2% 16.1% 1.8x 11.2x

Acuity Brands 120.01 64.2% 4,881 3,792 559 39.8% 14.7% 1.3x 8.7x


Flooring:

Mohawk Industries $126.15 51.0% $12,267 $9,984 $1,711 29.1% 17.1% 1.2x 7.2x

Interface 15.32 58.7% 1,447 1,180 173 38.2% 14.7% 1.2x 8.3x


Comp Group Median 70.8% $3,439 $2,922 $272 25.7% 14.7% 1.2x 8.7x


PUBLIC COMPARABLE ANALYSIS, CONTINUED

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BUILDING PRODUCTS DISTRIBUTION

DISTRIBUTION GROUP ONE-YEAR HISTORICAL STOCK PERFORMANCEAs of March 31, 2019Relative % change in closing prices

MATERIALS GROUP ONE-YEAR HISTORICAL STOCK PERFORMANCEAs of March 31, 2019Relative % change in closing prices

Source: Capital IQ

As of March 31, 2019$ in millions, except for share prices

BUILDING MATERIALS

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%Building Products Distribution S&P 500

Building Product Distribution



Ferguson $63.60 73.0% $16,768 $21,572 $1,712 29.3% 7.9% 0.8x 9.8x

HD Supply 43.35 93.6% 9,613 6,047 816 39.3% 13.5% 1.6x 11.8x

Beacon Roofing Supply 32.16 58.5% 5,613 7,018 496 25.1% 7.1% 0.8x 11.3x

Builders FirstSource 13.34 64.2% 3,090 7,725 467 24.9% 6.0% 0.4x 6.6x

GMS 15.12 44.9% 1,773 2,972 259 32.2% 8.7% 0.6x 6.8x

BMC Stock Holdings 17.67 76.3% 1,387 3,682 240 24.7% 6.5% 0.4x 5.8x

Richelieu Hardware 17.72 73.8% 1,027 767 78 10.3% 10.2% 1.3x 13.1x

Foundation Building Materials 9.84 60.0% 1,005 2,044 152 28.9% 7.4% 0.5x 6.6x

CanWel Building Materials Group 3.88 68.6% 539 981 53 14.8% 5.4% 0.5x 10.2x


Building Materials



Aggregates & Cement:

Vulcan Materials Company $118.40 88.6% $18,509 $4,383 $1,123 25.1% 25.6% 4.2x 16.5x

Martin Marietta Materials 201.18 86.4% 15,638 3,980 1,050 24.9% 26.4% 3.9x 14.9x

Eagle Materials 84.30 72.8% 4,479 1,393 449 23.8% 32.3% 3.2x 10.0x

Summit Materials 15.87 50.6% 3,521 2,101 375 29.8% 17.9% 1.7x 9.4x

U.S. Concrete 41.42 62.9% 1,407 1,506 171 19.6% 11.4% 0.9x 8.2x


Wood & Lumber:

Weyerhaeuser Company $26.34 68.6% $25,975 $7,476 $1,861 25.2% 24.9% 3.5x 14.0x

Louisiana-Pacific Corporation 24.38 75.8% 2,483 2,828 656 26.3% 23.2% 0.9x 3.8x

Boise Cascade Company 26.76 54.3% 1,313 4,995 231 13.8% 4.6% 0.3x 5.7x



40.0%

60.0%

80.0%

100.0%

120.0%

140.0%Aggregates & Cement Wood & Lumber S&P 500


GROWTH, PROFITABILITY & VALUATION ANALYSIS

6

MEDIAN THREE-YEAR REVENUE GROWTH (LTM YOY)As of March 31, 2019

Source: Capital IQ

MEDIAN ONE-YEAR REVENUE GROWTH (LTM YOY)As of March 31, 2019

MEDIAN TOTAL ENTERPRISE VALUE / LTM REVENUEAs of March 31, 2019

MEDIAN TOTAL ENTERPRISE VALUE / LTM EBITDA As of March 31, 2019

FIVE-YEAR MARKET VALUATION TREND (TEV / EBITDA)As of March 31, 2019

FIVE-YEAR SEGMENT VALUATION TREND (TEV / EBITDA)As of March 31, 2019

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

Wood & Lumber

Aggregates & Cement

Distribution

Flooring

Lighting

Building Envelope

Kitchen, Bath & Plumbing

Window & Door

General Manufacturers

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

Wood & Lumber

Aggregates & Cement

Distribution

Flooring

Lighting

Building Envelope


Window & Door


0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x 4.0x 4.5x 5.0x

Wood & Lumber

Aggregates & Cement

Distribution

Flooring

Lighting

Building Envelope


Window & Door


0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

2014 2015 2016 2017 2018 2019

Building Product Manufacturers Building Product Distribution

Building Materials S&P 500

0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x

Wood & Lumber

Aggregates & Cement

Distribution

Flooring

Lighting

Building Envelope


Window & Door


0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

21.0x

24.0x

27.0x

30.0x

2014 2015 2016 2017 2018 2019

General Manufacturers Window & Door Kitchen, Bath & Plumbing

Building Envelope Lighting Flooring

Distribution Aggregates & Cement Wood & Lumber

S&P 500


M&A TRANSACTIONS

7

Q1 2019 BUILDING PRODUCTS M&A TRANSACTIONS

Source: Capital IQ

Announced

Date Target Market (Segment) Description Acquirer

Mar-19 TWLC Distribution Distributes building products and materials Mid-Cape Home Centers

Mar-19 United MaterialsBuilding Materials

(Aggregates & Concrete)Produces and sells construction materials Votorantim Cimentos

Mar-19 Prime-Line Products CompanyManufacturing

(Window & Door)Manufactures and supplies repair and replacement parts for windows and doors Great Star USA Tools

Mar-19 PerforMax GlobalManufacturing

(Window & Door)Manufactures and supplies rubber and vinyl doors C.H.I. Overhead Doors

Mar-19 American Lumber Distributors Distribution Distributes building products in the Southeast United States Boise Cascade Company (NYSE: BCC)

Mar-19 Sound SealManufacturing

(Building Envelope)Manufactures and sells commercial and architectural acoustic noise control products The Stephens Group

Mar-19 Windsor Rock Products Distribution Produces and sells asphalt, oil rock products, and base rock aggregates RiverBend Materials

Mar-19 Delta Gypsum Distribution Distributes wallboard and related building products for commercial and residential markets L&W Supply Corporation

Mar-19 KPM Industries Distribution Provides home renovation and repair products along with construction equipment Sika (SWX: SIKA)

Mar-19 King Packaged Materials CompanyBuilding Materials

(Aggregates & Concrete)Manufactures dry shotcrete and mortars for concrete repair Sika (SWX: SIKA)

Mar-19 Quality Concrete ProductsBuilding Materials

(Aggregates & Concrete)Designs and manufactures precast concrete products Oldcastle Infrastructure

Mar-19 Viesko Redi-MixBuilding Materials

(Aggregates & Concrete)Manufactures ready mix concrete Knife River Corporation

Mar-19 VPI Quality WindowsManufacturing

(Window & Door)Manufactures vinyl windows and doors JELD-WEN Holding (NYSE: JELD)

Feb-19 Liquid Asphalt Building Materials

(Aggregates & Concrete)Manufactures liquid asphalt

Construction Partners (NasdaqGS: ROAD)

Feb-19 Conley CompositesManufacturing

(Kitchen, Bath, & Plumbing)Manufactures fiberglass pipes Andronaco Industries

Feb-19 J.J. Haines Distribution Distributes floor covering products for homes, architects, and builders BELKNAP WHITE GROUP

Feb-19 P.C. Goodloe and SonBuilding Materials

(Aggregates & Concrete)Manufactures asphalt for use in the construction industry Allan A. Myers

Feb-19 Yager MaterialsBuilding Materials

(Aggregates & Concrete)Provides limestone products, gravel, and sand used in construction Carmeuse


M&A TRANSACTIONS, CONTINUED

8









Strategic Advisory

Ongoing Strategic Advisory

RECENT LEAGUE PARK BUILDING PRODUCT ENGAGEMENTS

Source: Capital IQ

Announced

Date Target Market (Segment) Description Acquirer

Feb-19 United Pipe & Steel Distribution Distributes commodity pipe products Merfish Pipe & Supply

Jan-19 Victory Bolt & Specialty Distribution Distributes pole line hardware for the utility, public works, and construction industries AFC Industries

Jan-19 Architectural ComponentsManufacturing (Building

Envelope)Manufactures architectural wood ceilings and wall solutions

Armstrong World Industries (NYSE: AWI)

Jan-19 Environmental Materials Distribution Distributes and installs stone veneers Ply Gem Industries

Jan-19 Barefoot & Company Distribution Supplies specialty products to the building industry BMC East

Jan-19 Taylor Security & Lock Distribution Distributes locks, doors, and general hardware products Craftmaster Hardware

Jan-19 Metal Doors & Frame Distribution Distributes commercial hollow metal doors and frames Walsh Door & Hardware

Jan-19 Standard Bent GlassManufacturing

(Window & Door)Manufactures custom glass products for windows and doors Ibis Tek

Jan-19 T.A.C. Ceramic TileManufacturing

(Flooring)Provides flooring products for commercial and residential properties L.A.R.K. Industries

Jan-19 Mud Bay Manufacturing Manufacturing (Building

Envelope)Manufactures wood building products and architectural and structural supports Homewood Holdings

Jan-19 SIW Windows & DoorsManufacturing

(Window & Door)Manufactures hurricane impact-resistant windows, doors, and glass garage doors Marvin Lumber and Cedar


LEAGUE PARK OVERVIEW

League Park is a boutique investment bank committed to advising clients on strategies to try and maximize shareholder value. League Park counsels its clients on monetizing business value through sales and recapitalizations, enhancing corporate value through strategic acquisitions, and raising capital to fuel growth.

League Park’s senior bankers have decades of investment banking and M&A experience, completing over 300 transactions in the past 25 years. The League Park team pledges to provide sophisticated, specialized attention at every stage of the transaction process with a unique blend of financial, strategic, and operational expertise.

9


League Park offers focused strategies to help our clients

assess their strategic alternatives and realize liquidity events

Capital Raising & Recapitalizations

League Park advises clients on strategies to successfully grow,

monetize, and appropriately capitalize their businesses

Outsourced Corporate Development

League Park provides specialized outsourced corporate

development services, tailoring buy-side programs to the specific

needs of its acquisitive clients

BUSINESS SERVICES

CONSUMER& RETAIL

HEALTHCARE INDUSTRIAL TECHNOLOGY

INDUSTRY EXPERTISE

ADVISORY CAPABILITIES

CONTACT

For more information, please contact:

SEAN DORSEYFOUNDER & CEO

WAYNE TWARDOKUSMANAGING DIRECTOR

[email protected]

216.455.9990

[email protected]

216.455.9989


RECENT TRANSACTIONS

10

INDUSTRIAL & BUILDING PRODUCTS

BUSINESS SERVICES, CONSUMER, HEALTHCARE & IT


SOURCES & DISCLOSURE

11

SOURCES REFERENCED

Bureau of Labor Statistics (BLS)

Capital IQ

Company Investor Presentations

Construction Dive

FMI Corporation

Freight Waves

GreenBiz

National Association of Home Builders (NAHB)

Organization for Economic Cooperation & Development (OECD)

The Associated General Contractors of America

US Chamber of Commerce

DISCLOSURE

The preceding report has been prepared by League Park. This report is an overview and analysis of the industry and consolidation trends and is not intended to provide investment recommendations on any specific industry or company. It is not a research report, as such term is defined by applicable law and regulations. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In addition, this report is distributed with the understanding that the publisher and distributor are not rendering legal, accounting, financial or other advice and assume no liability in connection with its use. This report does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment decision. Any projections, estimates, or other forward looking statements contained in this report involve numerous and significant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially.

These materials are based solely on information contained in publicly available documents and certain other information provided to League Park, and League Park has not independently attempted to investigate or to verify such publicly available information, or other information provided to League Park and included herein or otherwise used. League Park has relied, without independent investigation, upon the accuracy, completeness and reasonableness of such publicly available information and other information provided to League Park. These materials are intended for your benefit and use and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of League Park. Nothing herein shall constitute a recommendation or opinion to buy or sell any security of any publicly-traded entity mentioned in this document.

Securities offered through SFI Capital Group, LLC, Member FINRA, Member SIPC and the affiliated broker-dealer of League Park Advisors, LLC

Documents

BUILDING PRODUCTSleaguepark.com/.../07/...Market-Update-April-2019.pdf · League Park Advisors is pleased to share its building products market update for April 2019. This report