Building Products - Raymond James · Cabinetry, Doors & Windows Flooring Construction Materials Roofing, Siding & Decking 6.0x 11.0x 16.0x 21.0x 26.0x 31.0x 36.0x 41.0x Cabinetry,

BUILDING PRODUCTS QUARTERLY NEWSLETTER

Information obtained from third-party sources is considered reliable, but we do not guarantee that the information herein is accurate or complete. This report was prepared within

Raymond James & Associates' Investment Banking Department and is for information purposes only. This report is not a product of Raymond James & Associates' Research

Department; recipients of this report should not interpret the information herein as sufficient grounds for an investment decision or any other decision. The report shall not constitute an

offer to sell or the solicitation of an offer to buy any of the securities mentioned herein; past performance does not guarantee future results. © 2019 Raymond James & Associates, Inc.,

member of New York Stock Exchange/SIPC.

Building Products Quarterly NewsletterQ3 2019

FOR INSTITUTIONAL USE ONLY


Informed Advice.

Quality Results.

1. Represents share price one day after each company announced the respective

separations / divestments.

In our Q4 2018 newsletter we touched on Masco’s concurrent divestitures

of its windows and cabinets businesses, which together account for over

$1.7 billion in revenue. At the time, Masco spoke about a “strategy to

drive the full potential of our core businesses” and an intention to “actively

manage our portfolio to drive shareholder value”. Sector peers clearly

took note, as the move has precipitated a wave of transformational break-

up announcements in 2019.

Boards are charged with maximizing shareholder value over the long term

via any means available to them. Since the financial crisis, that has been

most easily achieved through a combination of organic and inorganic

growth. However, organic growth has become increasingly challenged,

and while M&A remains important, balance sheet leverage is increasingly

on investors’ minds.

As a result, Boards have been forced to look harder at alternative means

of generating shareholder value. The “corporate split” has gained traction

in 2019; on the heels of Masco’s significant divestitures, we have seen

Eagle Materials and HD Supply announce transformational splits in recent

months. PPG Industries has also been under pressure from its activist

investor – Trian Partners – who is demanding a split of its architectural

coatings business from its manufacturing and industrial businesses.

The individual facts differ in each case – activist Sachem Head observed

a lack of synergy between Eagle’s segments and successfully pushed for

separation, while Trian believes PPG can unlock value by spinning off

higher value units. HD Supply’s businesses had “achieved sufficient scale

to operate as independent companies” (and no doubt they were watching

the situations at Masco, Eagle and PPG very closely).

In all cases, however, the underlying forces are strikingly similar. The

corporate split is becoming the favored means of unlocking new

shareholder value in a lower growth outlook environment. These new,

more focused entities will pursue independent strategies, take on

appropriate capital structures and, most importantly, achieve a full and

fair valuation that is not encumbered by unrelated businesses.

When attention was solely on growth, a blind eye was turned on imperfect

portfolios. If that dynamic is shifting, there are plenty of other “diversified”

portfolios across the sector that could also be due for a break-up.

Better Off Apart

Share Price Following

Separation Announcement(1)

$37.9

$39.2

Pre-Announcement Post-Announcement

+3%

$73.3

$84.3


+15%

$37.6

$40.0


+6%

Divestment of Windows and

Cabinets Business

Separation of Heavy Materials and

Light Materials Segments

Separation of Facilities Maintenance

and C&I Segments


3

2.3%

1.9%1.8% 1.8%

3.0%2.8%

2.3%2.2%

4.2%

3.4%

2.6%

3.1%

2.0%

Q2'16

Q3'16

Q4'16

Q1'17

Q2'17

Q3'17

Q4'17

Q1'18

Q2'18

Q3'18

Q4'18

Q1'19

Q2'19

5,490

4,500

4,800

5,100

5,400

5,700

6,000

Aug'18

Sep'18

Oct'18

Nov'18

Dec'18

Jan'19

Feb'19

Mar'19

Apr'19

May'19

Jun'19

Jul'19

Aug'19

1,419

800

1,000

1,200

1,400

1,600

Aug'16

Dec'16

Apr'17

Aug'17

Dec'17

Apr'18

Aug'18

Dec'18

Apr'19

Aug'19

Aug'16

Dec'16

Apr'17

Aug'17

Dec'17

Apr'18

Aug'18

Dec'18

Apr'19

Aug'19

1,364

400

800

1,200

1,600

Aug'16

Dec'16

Apr'17

Aug'17

Dec'17

Apr'18

Aug'18

Dec'18

Apr'19

Aug'19

1.63%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Aug'16

Dec'16

Apr'17

Aug'17

Dec'17

Apr'18

Aug'18

Dec'18

Apr'19

Aug'19

3

Key Economic Trends

Source: U.S. Census Bureau; U.S. Department of Housing and Urban Development;

The Federal Reserve.

Real GDP Growth 10 Year Treasury Yield (Monthly Average)

Total Housing Starts Single-Family & Multi-Family Housing Starts

Existing Home Sales

445

919

1,364

Multi-Family Single-Family

(Units in thousands)

(Units in thousands) (Units in thousands)

Authorized Housing Units by Building Permits


4

27.2x

18.7x16.8x 14.6x

Roofing,Siding &Decking

ConstructionMaterials

Cabinetry,Doors &Windows

Flooring

2.5x 2.3x

1.2x0.9x

Flooring Cabinetry,Doors &Windows



22.5% 22.0%15.4% 14.3%

Flooring Roofing,Siding &Decking

Cabinetry,Doors &Windows


18.5x

10.0x 9.7x 9.4x


Flooring Cabinetry,Doors &Windows


(50.0%)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

Cabinetry, Doors & Windows Flooring Construction Materials

Roofing, Siding & Decking S&P 500 S&P 500 - Industrials

Building Products: Public Company Metrics

Source: Capital IQ; Company Public Filings.

TTM Share Price Performance

5.7%2.2%

(5.1%)

13.2%

(19.1%)

EV / TTM EBITDA Multiples P / E (TTM) Multiples

TTM EBITDA Margins Net Debt / TTM EBITDA Multiples

Mean: 11.3x Mean: 18.3x

(0.5%)

Mean: 1.8xMean: 17.5%


5

($MMs)

% of EBITDA Multiple (3)(4) P / E Multiple (3)(4)

Price 52 week Market Net Debt CY CY CY CY

Ticker Name 9/27/19 High Cap(1) TEV(2) / EBITDA TTM 2019 2020 TTM 2019 2020

Cabinetry, Doors & Windows

AMWD American Woodmark Corporation 86.11$ 92.6% 1,457.1$ 2,132.2$ 2.7x 8.7x 8.7x 8.1x 12.3x 12.1x 10.8x

FBHS Fortune Brands Home & Security, Inc. 54.5 93.7% 7,675.6 9,995.4 2.6x 11.2x 10.7x 10.1x 15.8x 15.1x 13.7x

MAS Masco Corporation 41.68 95.6% 12,131.2 15,222.2 2.0x 10.7x 10.5x 9.9x 16.0x 15.6x 14.1x

PGTI PGT Innovations, Inc. 16.83 69.7% 1,024.7 1,339.4 2.2x 9.5x 9.7x 8.9x 15.9x 18.3x 15.4x

NX Quanex Building Products Corporation 18.07 93.0% 595.1 776.4 1.9x 8.3x 7.5x NA 24.1x 18.3x NA

Cabinetry, Doors & Windows Mean 2.3x 9.7x 9.4x 9.3x 16.8x 15.9x 13.5x

Flooring

AWI Armstrong World Industries, Inc. 96.08$ 91.9% 4,709.3$ 5,312.3$ 1.6x 14.0x 13.1x 12.1x 22.4x 20.9x 18.8x

TILE Interface, Inc. 14.59 62.1% 852.6 1,562.9 3.8x 8.5x 7.6x 7.4x 9.9x 9.5x 8.9x

MHK Mohawk Industries, Inc. 123.58 68.8% 8,920.4 12,210.0 2.1x 7.7x 8.0x 7.4x 11.4x 12.4x 11.2x

Flooring Mean 2.5x 10.0x 9.6x 9.0x 14.6x 14.3x 13.0x

Construction Materials

BCC Boise Cascade Company 32.57$ 86.3% 1,269.4$ 1,598.8$ 1.8x 8.7x 7.9x 7.5x 22.0x 17.3x 15.1x

ROAD Construction Partners, Inc. 15.25 91.1% 790.8 783.0 (0.1)x 8.9x 8.0x 7.5x 18.8x 16.5x 14.7x

SSD Simpson Manufacturing Co., Inc. 68.19 92.9% 3,046.4 2,941.6 (0.5)x 13.8x 14.0x 12.5x 24.6x 24.7x 20.9x

TGLS Tecnoglass Inc. 8.01 79.5% 359.3 572.8 2.3x 6.3x 6.1x 5.1x 9.3x 11.5x 9.1x

Construction Materials Mean 0.9x 9.4x 9.0x 8.1x 18.7x 17.5x 15.0x

Roofing, Siding & Decking

OC Owens Corning 62.54$ 99.1% 6,815.6$ 10,406.6$ 2.8x 8.1x 8.1x 7.6x 13.1x 13.4x 11.7x

TREX Trex Company, Inc. 89.92 99.1% 5,270.4 5,208.2 (0.3)x 28.9x 26.1x 21.3x 41.2x 37.8x 31.1x

Roofing, Siding & Decking Mean 1.2x 18.5x 17.1x 14.5x 27.2x 25.6x 21.4x

5.0x

8.0x

11.0x

14.0x

17.0x

20.0x

23.0x

Cabinetry, Doors & Windows Flooring

Construction Materials Roofing, Siding & Decking

6.0x

11.0x

16.0x

21.0x

26.0x

31.0x

36.0x

41.0x

Cabinetry, Doors & Windows Flooring

Construction Materials Roofing, Siding & Decking

5

Building Products: Public Company Metrics (cont.)

Source: Capital IQ; Company Public Filings; Raymond James Research.

1. Market capitalization calculated using fully diluted share count.

2. Total enterprise value equals equity market value plus debt and minority interest less cash and cash

equivalents.

3. RJ research estimates where available; Capital IQ estimates used for others.

4. "NA" refers to estimates that have not yet been published. “NM” refers to multiples that have been excluded

due to extraordinary circumstances.

Historical EV / TTM EBITDA Multiples Historical P / E (TTM) Multiples

5-Year Mean: 11.4x 5-Year Mean: 21.7x


6

Selected Transactions with Disclosed Deal Value

($MMs)

Enterprise Value /

Date

Announced Target Description Buyer

Enterprise

Value

TTM

Revenue

TTM

EBITDA

Aug-19

Infiltrator Water Technologies

manufactures and sells various products

for onsite wastewater storage and

disposal

1,080.0$ 3.7x 11.3x

Apr-19Laminam SpA manufactures large-size

ceramic surfaces279.8 2.3x 9.6x

Mar-19Agta Record manufactures, distributes

and installs automatic and industrial doors965.5 2.6x 17.4x

Jan-19Environmental StoneWorks designs,

manufactures and installs stone veneers186.0 ND ND

Dec-18

Formica is a manufacturer and distributor

of surfacing products intended for

customized furniture for homes and offices

840.0 1.2x ND

Nov-18

Glen Gery Corporation manufactures

bricks and masonry supplies and tools for

the building industry

110.0 0.9x 8.5x

Nov-18Armstrong Flooring designs and sells

vinyl, laminate and hardwood products100.0 ND ND

Oct-18US Block manufactures concrete blocks

for use in construction and paving 156.0 ND ND

Aug-18Silver Line manufactures vinyl windows

and patio doors190.0 0.4x ND

Aug-18

Fiberon manufactures and distributes

wood-alternative decking, and fencing

products for outdoor living applications

470.0 2.4x ND

Jul-18

Western Window Systems manufactures

windows, doors and related accessories

used in indoor/outdoor space creation

360.0 3.2x 14.7x

Jul-18Ply Gem manufactures exterior building

products used in residential construction3,606.5 ND ND

May-18IMERYS TC manufactures and distributes

roof tiles and accessories1,000.0 3.3x 9.0x

Apr-18SRS Distribution distributes residential

roofing materials and supplies3,000.0 ND 13.5x

Mean: 2.2x 12.0x

Median: 2.4x 11.3x

Building Products: M&A Activity

Source: Capital IQ; Company Public Filings; MergerMarket; Raymond James

Research.


7

Gross

Transaction Offer Offering % Mkt. Price Change From Offering to:

Pricing Issuer Ticker Type Price ($MMs) Cap 1 Day 1 Month Today

Sep-19 FBM Follow-on 17.00$ 80.8$ 9.9% (2.9%) NA (9.8%)

Sep-19 ROAD Follow-on 14.25 71.3 8.8% 9.3% NA 7.0%

Sep-19 GMS Follow-on 27.20 185.6 15.1% (0.8%) NA 5.4%

Mar-19 TGLS Follow-on 7.00 35.0 10.2% 0.3% 1.4% 14.4%

Sep-18 PGTI Follow-on 23.00 161.0 12.1% (5.9%) (12.4%) (26.8%)

Jun-18 GFF Follow-on 18.00 87.4 9.0% (0.3%) (0.6%) 13.4%

Jun-18 RWC Follow-on 3.13 828.6 34.6% 28.7% 40.4% (13.6%)

May-18 ROAD IPO 12.00 135.0 NA 0.8% 16.3% 27.1%

Dec-17 GMS Follow-on 38.25 191.3 12.1% (1.8%) (3.5%) (25.0%)

Dec-17 CNR Follow-on 19.55 139.8 9.9% (3.3%) (6.1%) (69.6%)

Nov-17 JELD Follow-on 33.75 421.9 11.2% 6.1% 16.7% (42.8%)

Sep-17 BLDR Follow-on 16.30 219.8 11.9% 1.7% 5.6% 25.1%

Sep-17 BECN Follow-on 47.50 300.4 10.2% 4.1% 17.2% (29.7%)

Jun-17 GMS Follow-on 33.00 165.0 11.3% 0.3% (13.0%) (13.1%)

May-17 JELD Follow-on 30.75 430.5 12.8% 0.0% 2.6% (37.2%)

Apr-17 CWX Follow-on 4.56 26.2 6.6% (0.5%) 3.3% (25.4%)

Mar-17 BMCH Follow-on 21.25 120.7 8.5% 0.3% (12.8%) (15.8%)

Mar-17 PATK Follow-on 73.00 98.6 8.5% 0.3% (12.8%) (15.8%)

Mar-17 BLDR Follow-on 14.65 146.5 9.0% 3.4% 0.9% 39.2%

Feb-17 GMS Follow-on 29.25 203.3 16.4% 0.2% 17.6% (2.0%)

Mean: 202.4 12.0% 2.0% 3.6% (9.8%)

Median: 153.8 10.2% 0.3% 1.4% (13.3%)

Building Products: Public Equity Activity

Source: Capital IQ; Company Public Filings; Raymond James Research.


8

Sam Darkatsh, Managing Director

Budd Bugatch, Managing Director

Joshua Wilson, Research Associate Analyst

Paul Ryan, Research Associate

RESEARCH COVERAGE

Building Products Equity Research Overview

8

Investment Banking

Professionals

+40

Cumulative Years

of Experience

M&A and Capital Markets

Transactions Since 2012

+40

Building Products Investment Banking Overview

Mergers &

Acquisitions

Public Equity

Offerings & Debt

Offerings

Private

Placements

Restructurings &

Recapitalizations

Valuations &

Fairness Opinions

FULL-SERVICE INVESTMENT BANK

1962

$7.3bn

7,900

126

Founded in 1962 and NYSE listed since 1983

Net revenue in fiscal 2018

Financial advisors managing >$824bn in assets

Consecutive quarters of profitability

1

4

“Investment Bank of the Year”

The Global M&A Network

“Investment Banking Firm of the Year”

The M&A Advisor Turnaround Awards

“Cross Border Deal of the Year ($500MM-$1B)”

International M&A Advisor Awards

Ranked 4th among all brokers in the U.S.

Thomson Reuters Analyst Awards

1

1

Raymond James Overview

RESEARCH TEAM

Aggregates & Asphalt

Flooring

Construction MaterialsCabinetry & Furnishings

Glass

Roofing, Siding & Decking

HVAC

Lock & Security Windows & Doors

SELECT ADVISORY & FINANCING CLIENTS

Insulation Lighting

Electrical & Plumbing

SUBSECTOR EXPERTISE

Note: Data is as of: 09/30/2019. Criteria for the awards can be found at:

https://www.raymondjames.com/about-us/accolades

Closing Success

Rate

>95%


9

Investment Banking Transaction Credentials

In a sale to

Bookrunner Sell-Side Advisory

2018

Co-managerSell-Side Advisory

2018

&

a portfolio company of

Has been acquired by


2019

Has divested


2019

$38,859,961

Follow-on Offering

Sell-Side Advisory



Linen Holdings, LLC

$1,000,000,000

Senior Unsecured

Notes Offering

Co-manager

2012


$506,000,000

Follow-on Offering

Co-manager

2012

and

2012

Sell-Side Advisory



20122012


Sell-Side Advisory

$1,275,000,000

Senior Unsecured

Notes Offering

Co-manager

2013


2013

$1,101,063,816

Initial Public Offering

Senior Co-manager


$98,037,500

Follow-on Offering

Bookrunner

2013

$740,600,000

Follow-on Offering

Lead Co-manager

20132013

Sell-Side Advisory


& Company

Management

$26,625,000

Follow-on Offering

Bookrunner

2014

$897,000,000

Follow-on Offering

Senior Co-manager

2014


Sell-Side Advisory

2014


and

2014


Sell-Side Advisory

2014


$1,250,000,000

Senior Secured Notes

Offering

Co-manager

Sell-Side Advisory

2015

Have been acquired by


and

$1,000,000,000

Senior Unsecured

Notes Offering

Co-manager

20162016

$169,050,000



Co-managerSell-Side Advisory

2016


Sell-Side Advisory

2016



Sell-Side Advisory

2016


Co-manager

2017

$206,080,000



Co-manager

2017

$233,780,625

Follow-on Offering


Co-manager

2017

$189,750,000

Follow-on Offering


Sell-Side Advisory

2017


and



2017

$345,503,125

Follow-on Offering

Co-manager


Sell-Side Advisory

20172018

Sell-Side Advisory

2018





2018

Sell-Side Advisory

2019

$950,000,000

Senior Subordinated

Notes Offering

Co-manager

2013


2013

Block Trade

760,141 shares

Sole Placement Agent

Sell-Side Advisory

2015



Buy-Side Advisory

2016

Has acquired

Sell-Side Advisory

2017


2018

Has entered into a

definitive agreement to

be acquired by

Sell-Side Advisory

2019

Bookrunner


$71,250,000

Follow-on Offering

$315,000,000

Senior Notes Offering


$143,400,000


Bookrunner

Co-manager

$80,750,000

Follow-on Offering


https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiQxKvFseXdAhUHnlkKHW6aAWgQjRx6BAgBEAU&url=https://www.hobbydb.com/subjects/aurelius-ag-bank&psig=AOvVaw3PbWanoy6YGc3Cg8n8OPMU&ust=1538488258274999

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwidrInZs-XdAhUkpFkKHTbaDY0QjRx6BAgBEAU&url=http://www.archiexpo.de/soc/mea-water-management-mea-bautechnik-gmbh-93022.html&psig=AOvVaw02pwezspJoWyyKPrMCrd3W&ust=1538488839761985


1010

Raymond James Building Products Investment Banking Team

Russell Green

Managing Director

Building Products

604.659.8323

[email protected]

Brian McDermott

Managing Director

Head of Building Products

727.567.5027

[email protected]

Gareth Hughes

Vice President

Building Products

727.567.5979

[email protected]

Christopher Dinu

Senior Associate

Building Products

727.567.6793

[email protected]

Will Schryver

Associate

Building Products

727.567.2136

[email protected]

Documents

Building Products - Raymond James · Cabinetry, Doors & Windows Flooring Construction Materials Roofing, Siding & Decking 6.0x 11.0x 16.0x 21.0x 26.0x 31.0x 36.0x 41.0x Cabinetry,