Appetite from private equity

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Stacks of bricks building products 01

PE investors are highly attracted to the building products sector because of the strong performance of players in the industry, the attractive end market dynamics (linked to long term growth in infrastructure spending) and the differentiated product offerings. They also appreciate the strong market position of many of these companies, as well as the fact that their products are associated with high levels of cash conversion.

Thanks to the increasing firepower within the PE market, investors can look at bringing together multiple players in the sector to create an enlarged entity

PE firms also regularly establish new platform investments in the sector which are often the subject of ongoing buy-and-build strategies. Thanks to the increasing firepower within the PE market, investors can look at bringing together multiple players in the sector to create an enlarged entity, which in time will itself be an attractive acquisition target for the large global groups. An example of this includes the investment in Stark AS by the US PE firm Lone Star. Stark is a Danish is a distributor of building products in the Nordic region which subsequently followed-up with the acquisition of Compagnie de St Gobain SA’s German building products distribution division. The group then also acquired XL-Byg Jens Schultz AS, a Danish distributor of building products.Lone Star also acquired Imerys Toiture SA, the French roofing manufacturing division of Imerys SA of Switzerland. The transaction allowed Imerys to deleverage its balance sheet and the target has subsequently been renamed Edilians SA.

PE interest in the sector also saw the US PE firm Ares acquire AZEK Co LLC, a US manufacturer of decking products. The group then acquired Return Polymers Inc, a US manufacturer of recycled PVC decking products; Versatex Building Products LLC, a US manufacturer of PVC building products; and WES LLC, a US manufacturer of railing products.

US PE activity has also seen Leonard Green & Partners acquire SRS Distribution Inc, a US distributor of roofing products. The transaction provided an exit for the US private equity firm Berkshire Partners LLC.

Trading of businesses between different PE firms is a common event in the building products sector

Trading of businesses between different PE firms is a common event in the building products sector demonstrated byBelgian PE firm Cobepa who acquired Gerflor SA, a French manufacturer of vinyl flooring and wallcoverings. The business was acquired from the UK PE firm Intermediate Capital and the transaction will allow Gerflor to reinforce its market presence and widen its geographic reach.

This was also seen in the case of Danish PE firm Kirkbi and the French PE firm PAI Partners who acquired Armacell International SA, a Luxembourg manufacturer of technical foam. The transaction provided an exit for the US PE firm Blackstone.

PAI Partners also acquired Stella Holding SA, a French manufacturer of blinds, gates, grilles and shutters. The transaction will see Stella expand the reach of its four brands, Eveno, La Toulousaine, Profalux, and Sofermi and provided an exit for UK PE firm Intermediate Capital.

Also in Europe, the German industrial investor Serafin acquired RCR Industrial Flooring Sarl, a Luxembourg manufacturer and installer of industrial flooring. The transaction provided an exit for UK PE firm Columna Capital.

Europe has also been a hot-bed for new PE investments

Meanwhile, Europe has also been a hot-bed for new PE investments in the building products sector including the US PE firm Blackstone acquiring the European Distribution division of CRH plc. The transaction allowed CRH to focus on its core activities and deleverage its balance sheet.

Another significant transaction saw the US PE firm CVC Capital Partners acquire Ahlsell AB, a Swedish distributor of building products and tools. The transaction will see the group continue with its international acquisitions strategy.

The Netherlands has also seen considerable activity, with the UK PE firm Equistone Partners acquiring Boal Holding BV, a Dutch manufacturer of greenhouses. At the same time, Dutch PE firm Broadview acquired Formica Corp, the US manufacturer of decorative laminates and surfaces, from the New Zealand group Fletcher Building Ltd. Also, the UK PE firm Equistone Partners acquired Heras BV, the Dutch manufacturer of fencing and perimeter protection products from CRH plc. Furthermore, the Dutch PE firm Parcom Capital acquired Outdoor Life Products BV, a Dutch manufacturer of garden timber products, in a transaction which provided an exit for Dutch PE firm NPM Capital.

Elsewhere in Europe, the German industrial investor Aurelius acquired the ceiling tiles and grids division of the US group Armstrong World Industries Inc. The transaction resulted from Knauf GmbH having to sell the business in order to achieve approval from the European Commission to acquire Armstrong World Industries Inc’s wider European and Pacific Rim operations. The Italian PE firm InvestIndustrial is also active player with new investments in the building products sector. It acquired Neolith SA, a Spanish manufacturer of high-end kitchens. InvestIndustrial also acquired Jacuzzi Brands LLC, a US manufacturer of bath and plumbing products in a transaction which provided an exit for US PE firms Apollo Global Management, Ares and Clearlake Capital Group.

An increase in the level of corporate carve-outs is likely to be another consequence of COVID-19, this will represent a fertile area of opportunity for PE

Meanwhile, the UK PE firm Cairngorm Capital has become a serial consolidator in the UK builders merchants and building products distribution sector. The firm has acquired Arnold Laver & Co Ltd, Building Supplies Online Ltd, Chandlers Building Supplies Ltd, Fairalls Ltd, Grant & Stone Ltd, North Yorkshire Timber Ltd, Parker Building Supplies Ltd, Rembrand Timber Ltd, Sussex Turnery and Moulding Co Ltd and Thornbridge Sawmills Ltd, all of which are UK builders merchants and distributors of building products.

Also in the UK, the UK PE firm Inflexion Private Equity acquired Marley Ltd from the Belgian group Etex Group SA. Marley is a manufacturer of roofing products. At the same time, UK PE firm Hilco acquired the UK windows and doors division of Masco Corp.

We expect there to be continued opportunities for PE as large trade groups continue to re-shape their portfolios to align with re-calibrated strategies. An increase in the level of corporate carve-outs is likely to be another consequence of COVID-19 as groups seek to ensure strategic focus and the most efficient allocation of corporate capital. This will likely represent a fertile area of opportunity for PE going forward.

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