Mid-Year Report Card
Looking Back at the Year Ahead
by Michael Collins
It is an interesting exercise, as we approach the midpoint
of the year, to recall the beginning of the year and examine the predictions
made at that time. The annual Bank of America CFO Outlook contained several
key points that gave cause for optimism. Three-quarters of the chief financial
officers (CFO) responding to the survey indicated that their research
and development (R&D) expenditures had returned to their pre-recession
levels. Despite the fact that the door and window industry is becoming
increasingly technical in nature, I’m not confident that 75 percent of
door and window manufacturers have restored their R&D spending.
More than half of the executives surveyed expected their revenues to increase
in 2012 versus the prior year. This anticipated increase in revenues undoubtedly
contributed to the fact that just less than one out of ten responding
companies indicated that they planned to trim the workforce this year.
The remaining companies were roughly evenly split between those that intended
to hire additional workers and those that expected their workforce to
remain the same size. The increase in national employment throughout this
year would indicate that companies have followed through on their hiring
Views from the CFOS
The average company surveyed about 2012 scored the overall health of the
broad U.S. and global economies somewhat lower than they did in 2011.
Interestingly, the average prediction of revenue growth, tempered by concerns
about the overall economy, has been the typical stance of door and window
manufacturers with whom we have spoken. Many have defied the odds by selecting
a niche in which they were able to grow.
At the outset of this year, CFOs cited a greater availability of credit
among lenders. Indeed, this has turned out to be the case thus far in
2012. Even for building products companies which have been painted with
a broad, negative brush by lenders since the end of 2007, the availability
of credit is increasing. This is good news since roughly 60 percent of
respondents reported their plans to seek financing for a specific purpose
this year. We are approached regularly by senior lenders seeking to extend
credit to building products companies that have weathered the storm and
remained at least somewhat profitable. Door and window manufacturers benefit
from having ample hard assets and receivables against which lenders will
extend credit. The increased availability of credit and working capital
will play a key role for door and window manufacturers during the unfolding
M&A—Buy or Sell?
With regard to mergers and acquisitions (M&A), one out of five companies
indicated that they would take part in these activities in 2012. Eighty-nine
percent of companies planning to take part in M&A activities planned
to be the buyer. It is certainly possible that many of the companies desiring
to make acquisitions will successfully approach a company that had not
previously indicated a desire to sell. Just as likely, however, these
indications are a symptom of the same M&A supply-and-demand imbalance
that exists in the door and window industry. We receive far more inquiries
from fenestration companies seeking to make acquisitions than companies
seeking to be acquired. This means that quality door and window companies
with well-positioned products and a solid management team that will continue
with the company after the sale will likely find a very receptive market
for their companies. With acquirers seeking ways to grow revenues and
armed with improved capital availability, the outlook for M&A transactions
in this industry segment remains favorable.
60 percent of respondents say they plan to seek financing for a specific
purpose this year.
89 percent of companies plan to take part in M&A activities.
Michael Collins is an investment banker with Jordan Knauff and
Co. He specializes in mergers and acquisitions in the door and window
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