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Navigating a Dynamic Market

Buyers are still in the market, and they are fleeing to quality

Window and door companies are navigating a dynamic market, one in which the macroeconomic challenges of a moderating economy and rising interest rates have tempered an almost breakneck trajectory in the U.S. housing industry.

We believe that, while real, the near-term housing market slowdown has been exacerbated by negative media coverage leading investors to largely sit on the sidelines for new building products M&A deals. Housing starts are at levels above historical averages and well above the previous downturn. While record-setting activity experienced in 2022 (high of 1.8 million) certainly helped drive robust revenue and profit growth, current activity levels leave plenty of opportunity for companies to generate healthy returns for investors.

Additionally, while forecasted growth has slowed in the repair and remodeling market, it is still projected to be positive for all of 2023 as consumers continue to invest heavily in their home environment.

Operationally, company performance has held relatively steady through the first quarter of 2023 with companies heavily tied to the new construction market seeing a mild softening in new order bookings.  

While attending the NAHB International Builders Show this February, we held conversations with leading window and door executives who revealed projected softening in 2023 revenue to a range of 5 to 10 percent, a smaller contraction than is currently being factored in by the investor community. With many companies experiencing flat to modestly growing first quarters in 2023, it will require a dramatic falloff over the next three quarters to see total performance contract more than 10 percent.

Impacts on capital markets and M&A activity

How are these forces impacting the capital markets and M&A activity broadly?

  1. Public company valuations are modestly down to flat. The BGL Window and Door Composite Index, which includes EPWN, JELD, DOOR, PGTI and NX,  is up 1.08 percent year-over-year, which compares to -5.61 percent for the S&P 500. Median EBITDA multiples have declined from 9.1x in the first quarter of 2022 to 7.9x today. M&A multiples are down as a result, with public multiples a barometer for private company transactions.
  2. Debt markets are evolving, particularly amid recent headlines surrounding Silicon Valley Bank and Credit Suisse. Leverage appetite is discerning, and pricing has increased. These factors, coupled with overall economic uncertainty, are tightening private equity funds’ appetite for new transactions and leaving some sidelined in the current environment. Add-on acquisitions must meet or exceed a high bar and may require an existing credit agreement to be renegotiated, which can result in higher pricing and/or tighter covenants.
  3. Buyers are still in the market, and they are fleeing to quality. Incoming order activity, backlog trends and sustainability of earnings have become key diligence items for investors. Companies focused on the repair and remodel market versus new construction are in favor. We do expect that the second quarter of 2023 will be pivotal for companies to “prove” their resilience to weather another quarter of tempered market demand. Those that continue to perform will be in a strong position once inflation, interest rates and economic outlook begin to show signs of sustained improvement.

We anticipate the markets opening for M&A activity during the second half of 2023. A pipeline of deals is growing in building products, and there is going to be an advantage for buyers standing ready to capitalize and acquire high-quality companies at reasonable prices before the bidding war begins. 


Andrew K. Petryk

Andrew K. Petryk

Andrew K. Petryk is a managing director and leads the Industrials practice at Brown Gibbons Lang & Company, an independent investment bank serving the middle market. BGL publishes the Building Products Insider, a nationally recognized research publication which discusses critical industry trends and perspectives from leading executives. Contact Petryk at 216/920-6613 or