Volume 13, Issue 8 - October 2012
Capital Markets Improving
The key statistics measuring the health of the housing industry are exhibiting increasingly positive trends on a more consistent basis.
Banks Lend Again
Even companies that lack a pristine balance sheet are finding additional flexibility in this improving capital environment. Companies that wish to ensure that their current capital provider is willing and able to help them take advantage of improving conditions should consider a three-step process.
First, they should consider whether to exchange a reasonably priced but reluctant lender with a more expensive but more willing lender. That should allow the company to undertake, as a second step, the needed growth initiatives in order to capitalize on the improving market. The final step, after the company’s growth plans have manifested themselves in an improved bottom line, is to exchange their expensive but willing lender with a reasonably priced and willing lender. This transition may take two years but it can leave the company in a much better position than staying with a lender who is riding with one foot on the brakes at all times.
Another aspect of the improving industry is the uptick in interest in management buyouts (MBOs). Business owners appreciate the chance to sell their company to their management team and, typically, the private equity fund backing management. It represents a way to reward the management team for their work in building the company and the owner can rest assured that the company is in capable hands. Customers are seldom concerned about continuity in these transactions, since the management team is largely staying in place. Also, it is virtually certain in such a transaction that the manufacturing facility will not be closed down or consolidated with another operation. Those on the management team can fare very well financially in an MBO and are often the perfect age to push hard on growing the company for five to seven years before providing themselves and their private equity (PE) backers with a big payday at the eventual sale of the company.
Companies Invest Again
Michael Collins is an investment banker and a partner of Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry.