Construction products maker Associated Materials LLC has a new private equity owner, Hellman & Friedman LLC, and an executive said the firm plans to beef up an already strong distribution network that dates to the company's founding as Alside after World War II.
In a deal announced Sept. 8 and expected to close in the fourth quarter, Hellman & Friedman will spend $1.3 billion to buy Associated Materials from two investment firms — New York's Harvest Partners Inc. and Investcorp International Inc. of London.
Cuyahoga Falls, Ohio-based Associated Materials makes vinyl, steel and aluminum siding, vinyl windows, vinyl railing, fence and decking and other exterior building products, under the brand names Alside, Gentek, UltraGuard, Revere, Preservation and Alpine.
On the plastics side, the company runs three profile extrusion plants, in West Salem, Ohio; Burlington, Ontario; and Ennis, Texas. Associated Materials picked up the Burlington vinyl extrusion factory in 2003 when it bought Cleveland-based Gentek Building Products Inc. — a major acquisition that brought in the vinyl and metal building operations of Alcan Aluminum Ltd.
Harvest Partners paid $436 million in 2002 to buy Associated Materials and its Alside business, taking the publicly traded company private. In 2004, Investcorp bought into the company during a recapitalization.
Associated Materials generated overall sales of $1.13 billion over the 12 months ended July 3, according to Erik Ragatz, a managing director of Hellman & Friedman. The total sales number includes revenue from all manufacturing and the 119 company-owned distribution centers.
Associated Materials is No. 9 in Plastics News' recent ranking of pipe, profile and tubing extruders, with $300 million in sales of plastics-related extruded products.
In a telephone interview, Ragatz confirmed a report on TheDeal.com that Hellman & Friedman won an auction to buy Associated Materials.
TheDeal.com reported that as many as five private equity firms made bids, although Ragatz did not confirm that number. According to TheDeal.com, Hellman & Friedman met the asking price. Deutsche Bank Securities Inc. and UBS Investment Bank are providing debt financing for the deal.
Ragatz said Hellman & Friedman paid about nine times earnings before interest, taxes, depreciation and amortization. He said that high multiple was justified because the company has done well, improving productivity and gaining market share, even as the recession has hammered construction.
He said Associated Industries' EBITDA has grown more than 10 percent since 2007.
Remodeling accounts for about 65 percent of Associated Materials' sales, which helped the construction products company through the recession, Ragatz said.
Citing regulatory filings, The Deal.com reported that an improving building products sector helped Associated Materials' adjusted EBITDA reach $133 million — 11.8 percent of the $1.13 billion in sales — in the 13 months ended July 3.
Industry analyst Michael Collins said the premium purchase price comes from Associated Materials' growth during the construction downturn, healthy EBITDA and the large size of the company. For construction product makers, an EBITDA margin of more than 10 percent of sales is more profitable than average, said Collins, vice president of the Building Products Group of Chicago investment bank Jordan, Knauff & Co.
Ragatz said Hellman & Friedman does not try to time industries and the economy when it makes a deal but instead looks for well-run companies with very stable revenue streams. The entire management team, including President and CEO Tom Chieffe, will remain, he said.
“We're a broad investment organization. We tend to buy businesses that are going to perform well in any macroeconomic market,” Ragatz said. Hellman & Friedman, with offices in New York, San Francisco and London, has raised more than $25 billion in capital since its founding in 1984.
Associated Materials is well-positioned to pick up more market share when construction rebounds, Ragatz said.
Ragatz said a major strength is Associated Materials' vertically integrated distribution model and innovative products, which he said make the company “uniquely positioned to serve exterior contractors” in remodeling and new construction. That status gives the company a big advantage over competitors that have to sell through a third party, he said.
Associated Materials' emphasis on company-owned distribution has deep historical roots.
Jerome Kaufman, who invented baked-enamel aluminum siding, founded Alside Inc. in 1947. The post-war period was marked by rapid home building and people investing money in their homes. Alside's innovation was to set up branch distribution centers and teach people how to sell the new siding door-to-door and install it properly, according to Bud Bootier, an industry consultant in Wexford, Pa.
“There are a lot of third-generation Alside businesses,” Bootier said. That gives Associated Materials the ability to control the siding, windows and other products from manufacturing all the way to the home, with a cadre of trained dealers and installers.
U.S. Steel bought the company in 1968. Jerome Kaufman's brother, Donald Kaufman, moved Alside into vinyl siding in 1978. Associated Materials was formed when William Winspear acquired Alside and two other businesses from U.S. Steel in 1984. He sold it to Harvest Partners.
Officials of Associated Materials did not return telephone calls for this story.
Now, Ragatz said, Hellman & Friedman wants to expand the distribution footprint by acquiring independent distributors and adding new sales centers.
A direct pipeline to end users also makes it easier to introduce new technology, he said.
