Building Products M&A Summary April 2021

The M&A market is active. Strategic and financial buyers are showing strong interest in acquisitions, and capital is plentiful to support deal activity. Transactions in the broader Industrials market saw only a modest contraction in multiples early in 2020, and valuations have returned to pre-COVID levels.

Building Products saw an acceleration in M&A activity beginning in May 2020. Strong underlying fundamentals for new construction, repair and remodel, and investing in the home environment have propelled deal flow. COVID-19 has been an accelerator as consumers increase investments in home repairs, upgrades, and renovations during the pandemic.

The announcement of several headline transactions across major subsectors underscores healthy buyer appetite and pent-up demand for high-quality assets to accelerate growth. Among notable examples include, in Residential Building Products, Fortune Brands’ (NYSE:FBHS) acquisition of LARSON Manufacturing at 8.8x EBITDA; in Distribution, the merger of Builders FirstSource (NasdaqGS:BLDR) and BMC Stock Holdings at 12.1x EBITDA, and in Materials, LafargeHolcim’s (SWX:LHN) purchase of Firestone Building Products at 12.59x EBITDA. Acquisitions have been termed “transformational” or establish new platforms to build scale and efficiencies, access new growth markets, and bolster the top and bottom lines.

Capital Markets

The debt markets are broadly open and actively pursuing new deals. However, leverage and pricing are increasingly situation-specific as lenders continue to evaluate the long-term impacts of COVID-19.

Companies demonstrating resiliency and stable outlooks are receiving considerable attention, garnering leverage and pricing at or near pre-COVID levels. Businesses that have been materially impacted by COVID-19 (either positively or negatively) are being evaluated with greater diligence and varying degrees of caution regarding outlook. On balance, the overall deal environment shifted in favor of borrowers given significant lender dry powder and muted deal activity for much of 2020.

Lenders are looking to put capital to work in very stable businesses. Building Products broadly has seen the COVID-19 lift, particularly businesses with exposure in home improvement products and services, and there is heightened sensitivity around sustainability of performance. Businesses that can demonstrate revenue resilience are more in favor (e.g., products being used for maintenance and repair given the recurring nature of revenues), as investors are looking for longer-term revenue visibility and limited earnings volatility. Similarly, buyers are looking to increase penetration in the repair and remodeling market.

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