Good Riddance, 2009
2010 Shows Many Signs of Promise
by Michael Collins
Last year began under such a terrible cloud of doubt that
the first time I sat at my desk with my head in my hands and said to myself,
“Just get through this year,” was, without exaggeration, January 15, 2009.
As often happens in life, the situation improved steadily over the course
of the year. The market provided several valuable opportunities in 2009
and, for companies that searched with particular diligence, there were
others to be had as well.
In the Midst of Recovery
At the outset of the year, the United States was still embroiled in the
worst financial crisis in the memory of most Americans. This Great Recession,
as it is called, had every bit of the potential to wreak global havoc.
The Fed and other bodies providing oversight of the financial system have
learned the lesson that the best solution for uncertain times is increased
liquidity. The financial markets have calmed, the United States has pulled
back from the brink and the statistics coming out of the housing market
are beginning to turn more consistently positive. The process of capitulation,
wherein a market finds a bottom, has taken much longer than originally
However, the turn in markets usually becomes apparent through observations
of data, such as housing starts or existing home sales. During a decline,
this data typically is negative month after month. As the market begins
to find a bottom, the data is occasionally and almost inexplicably positive.
During the recovery phase, the data is more often positive than negative.
We are definitely entering the recovery phase, indicating that 2010 should
be a better year in the residential sector than 2009.
Acquisitions to Continue
Looking to the year ahead, we would anticipate continued brisk merger
and acquisition activity in the door and window industry. As in 2009,
many transactions will be driven by the need of sellers to gain access
to capital to continue operating. The latter part of 2010 may bring with
it a number of sellers that have a year of black ink behind them and a
desire to sell on relative strength. Larger, better capitalized strategic
buyers remain in the market in force, seeking opportunities to expand
their product offerings, their distribution channels and their geographic
coverage areas. Private equity funds, too, remain active despite a poor
year of fundraising in 2009. The fact is that these funds raised so much
capital in 2007 and 2008 that there is still a huge overhang of capital
of some $400 billion that must be placed in attractive investment opportunities.
With the building products industry beginning to show signs of making
a turn, dozens of these funds are looking here for deals.
Tax Credits Give Much Needed Boost
The key event in 2009 was, in our opinion, the way in which energy efficiency
catapulted to the forefront of the building products industry. This came
largely as a result of the $1,500 tax credit for doors and windows that
met the much derided .30/.30 standard. We are aware of several owners
who were considering selling their companies prior to the tax credit that
decided not to do so, as a result of the uptick in sales driven by the
credit. We are not aware of any companies that went out of business because
they failed to capture additional sales driven by the tax credit. However,
being unable to qualify for the credit certainly represented an undesirable
obstacle faced by companies in that situation.
We believe the door and window industry will receive a dividend in 2010
as a result of the first time home buyer tax credit in 2009. Many of the
homeowners who benefitted from this tax credit in 2009 will also be eligible
for the $1,500 energy efficiency tax credit in 2010. This will add some
strength to the remodeling market in the coming year, since buyers of
existing homes tend to remodel them. Since the first time home buyer program
has been extended, it is likely that a similar dividend will occur in
2011. In any case, a New Year is beginning that offers the appeal of a
high likelihood of being a better year for many industry participants
than the one coming to a close.
Michael Collins is vice president of the building products group
at Jordan, Knauff & Company, an investment banking firm that specializes
in the door and window industry. He may be reached at firstname.lastname@example.org.
His opinions are solely his own and not necessarily those of this magazine.
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