Volume 7, Issue 7 - July/August 2006

Trend Tracker
Responding to Industry Trends—A Vital Matter

by Michael E. Collins

Door and window companies exist within a segment of the overall economy that displays several unique and enviable characteristics. 

The Challenges

That being said, there are several challenging trends in the industry today that require a response on the part of companies that wish to grow and prosper. Among the most important of these is the consolidation among large homebuilders. According to a study by Harvard University’s Joint Center for Housing Studies, the market share of the top ten homebuilders in the United States doubled to roughly 20 percent in the ten-year period ending in 2004. As homebuilders become larger, they begin to focus on using fewer suppliers. Thus, a door and window company that is strictly regional in nature may find itself losing its large homebuilder customers to a competitor with a national footprint.

Other challenges include increased demands for energy efficiency, calls for shorter delivery times for customized products, competition with big box retailers and an insatiable demand for continued product innovations. Finally, the consolidation among door and window companies has put pressure on companies that are smaller and more regional in nature to continue to automate in order to compete effectively.

Be Aggressive 

In an environment of such competitiveness and change, allowing a company to roll along in the hope that the business will continue to operate as it has in the past is perhaps the most risky strategy possible. In our conversations with owners of door and window companies, we have learned that this is often the case. Other companies, though, take a very different approach. We believe that the companies that will grow in value over the next five years are those that undertake aggressive plans for the future. Many of these companies are raising capital to expand their current operations or to build entirely new facilities. The obvious advantage of the latter is that the new facility will be designed with the company’s unique product mixture and production requirements in mind. Also, almost without exception, companies that have not been sufficiently automated in the past use the advent of a new facility to increase their level of automation significantly. Such facilities are often built large enough to accommodate future expansions. 

Other companies view the current market conditions as being optimal for acquiring competitors. A number of industry participants have reported to us their intention to acquire door or window companies with $5 to $10 million in revenues. Far larger acquisitions have also become commonplace in the industry. For every buyer in these transactions, there is a seller–someone who has decided to harvest the investment they have made in their company. In a competitive environment where staying the course is no longer a viable option, many business owners opt to sell their company to a new owner, who will implement the changes necessary to take the company to the next level.

The Advantages

Perhaps the greatest advantage enjoyed currently by door and window manufacturers is the abundance of capital that is available to help accomplish any of the tactics discussed above. Capital providers are very aware of the positive characteristics of the door and window industry. The owners of profitable, growing companies would likely be able to gain access to the various types of capital needed to expand facilities, acquire a competitor or achieve full or partial liquidity of their ownership position. An additional benefit of strong capital availability is that competition for deals has increased business valuations. Door and window companies operate in an environment that should provide great rewards for companies that make a realistic assessment of the competitive forces they face and respond by crafting bold plans for the future.

On a final note, this summer, we will launch the Jordan, Knauff and Company Window and Door Industry Benchmark Survey. This survey will be sent to door and window manufacturers in all segments of the market. The detailed results of this confidential survey, which will cover operational and financial metrics, will be made available only to companies that contribute data to the survey. (If you would like to participate, please contact me at mcollins@jordanknauff.com.)

DWM
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