Building Products Industry€¦ · Building Products Industry Q4 2016 • Trump, Immigration, and the Construction Industry • U.S. Economic Indicators • U.S. Building Products

Building Products IndustryQ4 2016

• Trump, Immigration, and the Construction Industry• U.S. Economic Indicators • U.S. Building Products Industry Indicators• Mergers & Acquisitions• Cherry Tree Building Products Index

Inside this report:

Trump, Immigration, and the Construction Industry

2Cherry Tree Research | Building Products Industry Report

A more stringent immigration policy has been a top priority for President Trump and his team since he announced his

intentions to run for U.S. President in June 2015. During the campaign, President Trump proposed stricter

enforcement of deportation policies and a Mexico border wall, which would be paid for by Mexico and halt any

illegal criminals and drugs from entering the United States. Immigration became one of the most divisive issues over

the course of the campaign. For the building products industry, immigration, especially illegal immigration, has

been a key source of less expensive, hard-working labor. Retaining this key source of labor has become even more

important as a labor shortage has gripped the industry. A prolonged shortage has brought about a period of low

housing sector activity and quickly increasing labor costs. Therefore, it is vital for companies to examine and

understand how the new Administration’s immigration policies could further affect their workforce and the broader

construction market.

The construction labor shortage originated soon after the housing crisis struck in 2007. After enjoying robust growth

in the mid-2000s, the construction industry was decimated by the crisis. Housing starts plummeted and many firms

laid off workers to survive, leading to a nearly 40% decline in construction jobs between April 2006 and July 2011.

As the economic recovery occurred, the supply of construction labor did not return at the same pace as demand and

a labor shortage emerged. Today, the shortage remains and construction employment is approximately 1 million less

than in 2007. One of the primary reasons for the labor shortage is demographics. Millennials are less likely to pursue

a job in the construction industry than previous generations. Many high school students and their families believe a

college degree is the only path to success, when an apprenticeship or trade school can still offer a suitable route to

financial independence. Millennials are not, however, the only reason for the labor shortage.

Illegal immigrants form a significant portion of the construction industry’s labor force. According to Mark Boud, chief

economist at Hanley Wood, illegal immigrants comprise as much as 20% of the entire construction workforce. The

construction industry has historically offered attractive opportunities to illegal immigrants largely because they could

earn a decent wage after learning a trade in a relatively quick manner. Illegal immigrants were harmed in much the

same way as U.S.-born workers during the recession. From 2007 to 2012, illegal immigrants employed in

construction declined by 23% according to the Pew Research Center. Since that time, illegal immigrants’ interest in

construction employment has significantly changed for two reasons. First, an improving Mexican economy offered

Mexican citizens better job opportunities closer to home. Second, the Obama Administration’s policy of stricter

deportation enforcement discouraged workers from entering or returning to the U.S. The combination of these forces

left a significant gap in the construction labor force, which domestic workers have not been able to fill to this day.

With the policies of the new Administration, it appears unlikely that the number of illegal immigrants employed by

the construction industry will return to previous levels. In President Trump’s first weeks in office, he signed the

executive order termed “Border Security and Immigration Enforcement Improvements,” which authorized the

construction of a border wall and stricter deportation procedures for illegal immigrants. As it relates to the supply of

construction labor, this new policy should not only affect the flow of illegal immigrants, but also affect those

presently in the United States.

How the new Administration’s immigration policy could affect the construction workforce

Continued on next page…

Trump, Immigration, and the Construction Industry

3Cherry Tree Research | Building Products Industry Report

This policy has both positive and negative implications, depending on the viewpoint being examined. For legal

workers employed in the construction sector, wages will likely increase as their skills become more demanded in a

shrinking workforce. Unemployed workers should benefit as construction employment opportunities increase as

construction companies seek to fill new positions or replace illegal immigrant employees. Construction companies,

however, will likely be hurt by the policy. With increasing wages and a shrinking labor pool, growth prospects and

profitability will suffer. In terms of wages, construction labor costs are already well above the national average.

Average hourly earnings for a construction worker is currently $28.32, representing a 3.2% increase over the past

year and 9% higher than the national hourly average. Pairing increasing labor costs with a dwindling labor force

will likely lead to an overall stagnation in activity as companies cannot effectively supply the labor necessary to meet

demand. In this scenario, housing prices would continue to rise, and potentially accelerate, as inventories remain

depressed due to low housing start activity. To avoid this scenario, the domestic construction workforce must be

grown to replace the void left by deported illegal immigrants. There are several policies that the new administration

can pursue, in coordination with construction companies and industry groups, to meaningfully increase the domestic

construction labor force.

The Associated General Contractors of America (AGC), an organization representing more than 26,000 construction

firms, has been leading the push to increase the construction labor pipeline. AGC has advocated for more marketing

to high school students, an expansion of the H-2B visa program, the creation of a new guest-worker program, and a

path to citizenship for some illegal immigrants. The last three measures, which focus on foreign-born workers, are

less likely to be pursued by the new “Buy American and Hire American” Administration. Yet, the first policy of

increasing high school student interest in skilled trade careers is an area where construction companies and the

Trump Administration might be able to work together. For many, a trade school or apprenticeship may be a better

choice than the widely-advocated avenue of a college degree. Trade school and apprenticeship programs teach

highly-demanded skills at a reasonable cost, very different from the situation of countless debt-laden college

graduates. Advocating for the pursuit of trade jobs to high school students, however, may not completely solve the

labor shortage problem in the short term. Nevertheless, it is a significant way in which the new Administration can

work with businesses to organically grow and solidify the construction labor pipeline over a longer period of time.

Although the construction labor shortage started nearly a decade ago, the industry is still struggling to address the

problem. In February 2016 HomeAdvisor conducted a survey asking owners of construction companies about the

labor shortage. The response was overwhelming with 93% stating it would prevent their business from growing

over the next 12 months. The HomeAdvisor survey highlights an increasingly pressing issue that won’t simply

disappear. Therefore, it is essential for construction companies, industry groups, and the new Administration to find

common ground and introduce solutions. The new Administration’s stringent immigrant policy, while beneficial for

U.S. employees and the unemployed, will likely fuel the shortage issue and depress the profitability of construction

companies. It is unlikely that the policy will be reversed, so it will be important to seek out ways in which to grow

the domestic labor force. A policy of educating more high school students in the opportunities and rewards of a

skilled construction career would be a good first step. With this policy, President Trump can pursue his goal of

“Buy American and Hire American,” while working with construction companies to help solve an increasingly

concerning issue.

Sources: U.S. Census Bureau, U.S. Bureau of Labor Statistics, Pew Research Center, Capital IQ, Cherry Tree Research

0

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1987

1989

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2017

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U.S. Economic Indicators

PAYROLLS ADDED AND UNEMPLOYMENT RATE CONSUMER CONFIDENCE

§ Consumer confidence has steadily increased since the 2008-2009 recession. In December 2016, consumer confidence jumped to 113.4, its highest level since July 2001.

§ A healthy job market and rising wages have been key reasons for the significant increase in confidence over the past 8 years.

§ The U.S. economy has added jobs for 75 straight months. The unemployment rate sits at 4.7% as of December 2016. It has been hovering at or slightly below 5.0% since 2015Q4.

§ While the unemployment rate remains low, the labor force participation rate is 62.7%, a significant decline from the post-recession normal of 65-67%.

REAL GDP GROWTH KEY INTEREST RATES

§ U.S. Real GDP increased by 1.9% in the last quarter of 2016, which was largely in line with recent performance. Real GDP growth has been widely regarded as sluggish throughout the recovery.

§ Real GDP growth has fluctuated between 1% and 3% during the recovery, a decrease from previous recoveries where a robust period of 4-6% growth was common.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

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2011

Q1

2011

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Q1

2012

Q3

2013

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Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3 0%

1%

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5%

6%

7%

Jan-

07

Jan-

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10-YearTreasuryRate30-YearConventionalMortgateRateFederalFundsRate

Cherry Tree Research | Building Products Industry Report 4

Figures in thousands

Sources: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, The Conference Board, Federal Reserve Bank of St. Louis, Cherry Tree Research

§ The Federal Reserve increased its federal funds rate in December 2016 for the second time in the past decade.

§ The 10-Year Treasury Rate and 30-Year Conventional Mortgage Rate rose after the presidential election. President Trump’s economic policies, if enacted, are likely to increase inflation and force the Federal Reserve to act in a quicker manner than previously expected.

U.S. Building Products Industry Indicators

ANNUAL U.S. SINGLE-FAMILY HOUSING STARTS

0

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1964

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1988

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2016

Long-RunAverage

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1964

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2008

2012

2016

ANNUAL U.S. MULTI-FAMILY HOUSING STARTS

Long-RunAverage

§ Multi-family housing starts have recovered well from the recession. There were 385,500 projected multi-family housing starts in 2016, which was a 3.0% decline from 2015’s total.

§ The multi-family market remains slightly below its long run average of 419,700 starts. That represents an 8.9% increase from multi-family housing starts in 2016.

§ The single-family housing market has struggled to fully recover from the 2008-2009 recession. There were 780,900 projected single-family housing starts in 2016, which was a 9.3% increase over 2015’s total.

§ The long run annual average for single-family starts is 1,019,700, which represents a 30.6% increase from 2016.

ANNUAL VALUE OF CONSTRUCTION PUT IN PLACE

53%

49%

46%

44% 47

% 57% 66

%

72%

69%

68%

68%

64% 63

% 60%

60%

47%

51% 54

% 56% 53

% 43%

34%

28%

31%

32% 32

% 36% 37

% 40% 40

%

$

$200

$400

$600

$800

$1,000

$1,200

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Nonresidential Residential

CONSTRUCTION BACKLOG INDICATOR

6.5

6.1

7.37.4

7.98.1

8.48.6

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

2009

Q1

2009

Q3

2010

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2010

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2011

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2011

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2012

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Q3

§ The U.S. Census Bureau’s Value of Construction Put in Place provides an estimated total dollar value of construction work done in the U.S.

§ In 2016, construction work was valued at approximately $1.16 trillion, a 4.5% increase over 2015 and slightly higher than the pre-recession peak.

§ The Construction Backlog Indicator (CBI) is a forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead.

§ The CBI has increased from 6.5 months in 2009Q1 to 8.6 months in 2016Q1, reflecting the increase in nonresidential construction over that time period.


Figures in thousands Figures in thousands

$ in millions Figures in months

Sources: U.S. Census Bureau, Associated Builders and Contractors, Cherry Tree Research

M&A: $1+ Billion Enterprise Value

Note: Transactions have publicly-disclosed multiples and enterprise values greater than $1 billion

Sources: Capital IQ, Cherry Tree Research

Announced Enterprise Enterprise Value/

Date Acquirer Target Target Description Value Revenue EBITDA

11/20/2016 Boral Limited Headwaters Incorporated Building materials provider $2,564.4 2.6x 14.8x

09/15/2016 Marsella Holdings S.à r.l. Braas Monier Building Group S.A. Pitched roof products manufacturer and supplier $1,620.5 1.2x 7.9x

08/01/2016Tianjin Circle Enterprise Management Center

Sichuan Shuangma Cement Co. Chinese cement subsidiary of LafargeHolcim $1,301.4 4.3x 31.4x

07/06/2016 Melrose Industries PLC Nortek Inc. HVAC products manufacturer $2,732.0 1.1x 9.9x

03/17/2016 Lafarge Ciments SA Holcim Maroc S.A. Morrocan cement, concrete, and aggregates manufacturer $1,177.0 3.6x 13.3x

01/25/2016 Standard Industries Inc. Icopal a/s Roofing and waterproofing products manufacturer $1,100.0 1.0x —

11/08/2015 Weyerhaeuser Co. Plum Creek & Timber Co. Timber REIT $11,644.5 7.2x 22.4x

07/28/2015 HeidelbergCement AG Italcementi SpA Italian cement and clinker producer $7,492.1 1.5x 10.4x

07/27/2015 Beacon Roofing Supply, Inc. Roofing Supply Group, LLC Roofing materials distributor $1,142.0 1.0x —

07/22/2015 The Home Depot, Inc. Interline Brands Inc. Maintenance, repair, and operations products distributor $2,423.2 1.4x 18.5x

06/14/2015 Standard Pacific Corp. Ryland Group Inc. Homebuilder and mortgage-finance firm $3,077.5 1.2x 10.0x

04/13/2015 Builders FirstSource, Inc. ProBuild Holdings, Inc. Building and lumber materials distributor $3,432.4 0.8x —

01/13/2015 Unilin BVBA IVC N.V. Belgium-based vinyl floors producer $1,227.1 1.8x —

12/24/2014 Lone Star Funds Forterra plc Concrete and clay building products manufacturer $1,410.8 1.2x 14.5x

05/19/2014Oak Hill Capital Partners; CCMP Capital Advisors, LLC

The Hillman Companies, Inc. Hardware-related products distributor $1,475.0 2.1x 12.8x

04/07/2014 Holcim Ltd. LaFarge S.A. Cement and aggregates manufacturer $32,132.9 2.2x 10.6x

01/28/2014 Martin Marietta Materials, Inc. Texas Industries Inc. Cement, aggregates, and concrete manufacturer $2,685.1 3.4x 31.5x

Median $2,423.2 1.5x 13.3x


$ in millions

M&A: $100 Million - $1 Billion Enterprise Value

Note: Transactions have publicly-disclosed multiples and enterprise values between $100 million and $1 billion

$ in millions




12/14/2016 Apogee Enterprises Sotawall Limited Curtain wall systems manufacturer and installer $135.0 1.4x —

10/26/2016 Daiwa House Industry Co. Stanley Martin Communities Virginia-based homebuilder $307.2 0.7x —

10/13/2016 Elementia, S.A.B. de C.V. Giant Cement Holding Cement manufacturer $400.0 1.7x —

10/05/2016 UPP Holdings Limited Taiga Building Products Limited Building products wholesale distributor $188.8 0.2x 6.1x

09/22/2016 Lennar Corporation WCI CommunitiesFlorida-based community developer and luxury homebuilder

$830.7 1.3x 13.7x

08/04/2016 Siam City Cement Public Company Holcim, Vietnam Operations Cement and ready-mix concrete supplier in Vietnam $824.2 3.4x 15.5x

07/25/2016 Siam City Concrete Co. Holcim (Lanka) Limited LaFargeHolcim's Sri Lankan assets $377.5 2.3x 18.2x

06/13/2016 Hardwoods Specialty Products US Rugby IPD Corp. Building products distributor $119.8 0.4x 9.5x

05/12/2016 NIBE Energy Systems Inc. The Climate Control Group, Inc. HVAC manufacturer $364.0 1.3x 14.6x

12/16/2015 PulteGroup, Inc. JW Homes, LLC Homebuilder in Southeast U.S. $450.0 1.6x —

11/18/2015 Breedon Aggregates LimitedHope Construction Materials Limited

Cement, ready mix concrete and aggregates producer $544.8 1.2x 6.7x

09/17/2015 Lone Star Funds Foundation Building Materials Drywall and insulation distributor $560.0 0.8x —

08/31/2015Quanex Building Products Corporation

WII Components Inc. Cabinet and wood products manufacturer $368.3 1.5x 12.9x

08/25/2015 Mitsubishi Electric Corporation DeLclima S.p.A. HVAC and refrigeration products provider $790.6 2.0x 17.0x

08/20/2015 BMC Stock Holdings, Inc. Robert Bowden, Inc.Georgia-based building material supplier and manufacturer

$102.7 1.3x 9.9x

06/10/2015 AV Homes, Inc. Bonterra Builders, LLC Homebuilder in North Carolina and South Carolina $101.5 0.9x —

04/17/2015Continental Cement Company, LLC

Lafarge North America Inc., Cement Assets

Cement plant and cement distribution terminals. $450.0 4.0x —

03/30/2015 Fortune Brands Home & Security Norcraft Companies Kitchen and bathroom cabinetry manufacturer $551.4 1.5x 12.1x

01/26/2015 Kingspan Group plc Joris Ide NV Metal envelope building products manufacturer $335.1 0.6x 7.7x

12/08/2014 Norbord, Inc. Ainsworth Lumber Co. Engineered wood products manufacturer $889.9 2.2x 29.0x

11/11/2014 Kingspan Group plc Vicwest IncRoofing, siding & insulation products manufacturer and distributor

$300.4 0.8x 22.5x

11/10/2014NCI Group, Inc.; Steelbuilding.com, Inc.

CENTRIA Incorporated Engineered wall, roof and flooring systems manufacturer $245.0 1.1x —

10/22/2014 CVC Capital Partners Limited Paroc Group Oy Stone wool insulation producer $885.7 1.7x 9.3x

08/19/2014 Ply Gem Industries, Inc. Simonton Windows Vinyl framed windows and patio doors manufacturer $130.0 0.4x —

07/28/2014 PGT Industries, Inc. CGI Windows & Doors, Inc.Hurricane impact resistant windows and doors manufacturer

$111.0 2.5x 16.8x

07/10/2014 Meritage Homes Corporation Legendary Communities LLCHomebuilder in Georgia, South Carolina, and North Carolina

$140.0 0.9x —

04/01/2014 Century Communities, Inc. Dunhill Homes, LLC Nevada-based homebuilder $165.0 2.2x —

03/21/2014 Nortek Inc. Thomas & Betts, HVAC Business HVAC manufacturer $260.0 1.6x —

02/09/2014 Interfor U.S. Inc. Tolleson Lumber Company, Inc. Lumber products manufacturer $180.7 1.3x 4.9x

01/23/2014 Cementos Argos S.A. Vulcan Materials, Florida Assets Cement and concrete manufacturing facilities $720.0 4.7x —

Median $349.6 1.3x 12.9x


M&A: $1 Million - $100 Million Enterprise Value

Note: Transactions have publicly-disclosed multiples and enterprise values between $1 million and $100 million

$ in millions




11/09/2016 GCP Applied Technologies Halex Corporation Flooring installation products manufacturer $47.0 1.0x —

11/02/2016 Regional Brands, Inc.; Lorraine Capital B.R. Johnson, Inc. Window, door, and hardware provider $15.4 — 5.2x

09/06/2016 DR Horton Inc. Wilson Parker Homes Homebuilder in the Southern United States $90.0 0.4x —

05/23/2016 Patrick Industries Inc. Cana Holdings, Inc. Cabinetry products manufacturer $16.8 0.9x —

03/09/2016 CanWel Building Materials Group Ltd. California Cascade Industries Inc. Wood decking and fencing manufacturer $53.2 0.6x —

10/01/2015 Masonite International Corporation USA Wood Door, Inc.Wood door manufacturer

$13.7 0.8x —

08/11/2015 Ductmate Industries, Inc. Lindab Inc.Sheet metal products manufacturer for the HVAC industry

$10.7 0.6x —

08/05/2015 Masonite International Corporation Hickman Industries UK-based building materials manufacturer $82.0 0.7x —

07/27/2015 Masonite International Corporation Performance Doorset Solutions Doorsets and windows manufacturer $16.0 0.8x —

04/29/2015 Stella-Jones Inc.Ramfor Lumber Inc. and Ram Forest Group Inc.

Lumber and plywood products manufacturer $49.4 0.6x 5.0x

04/24/2015 DR Horton Inc. Pacific Ridge Homes Homebuilder in the Seattle metropolitan area $70.9 0.9x —

02/09/2015 Builders FirstSource, Inc. Timber Tech Texas, Inc. Wood and building products manufacturer $5.8 1.3x —

11/13/2014 Century Communities, Inc. Peachtree Communities Group, Inc. Homebuilder in the Southeastern United States $94.9 0.4x —

09/18/2014Hardware and Home Improvement Group

Tell Manufacturing, Inc.Commercial and residential door hardware distributor

$31.8 0.8x —

08/18/2014 Kingspan Group plc Pactiv Building Products Insulation products manufacturer $82.0 1.0x 6.4x

08/01/2014 Builders FirstSource, Inc. West Orange Lumber Company Building products manufacturer $9.8 0.7x —

07/01/2014 Builders FirstSource, Inc. Slone Lumber Company Building materials distributor $8.7 0.5x —

02/24/2014 Masonite International Corporation Door-Stop International Door manufacturer $50.4 1.3x —

Median $39.4 0.8x 5.2x

Cherry Tree Research | Building Products Industry Report

$ in millions

8

Recent M&A: 2016Q4




12/30/2016 The Sterling Group Stetson Building Products Construction materials distributor — — —

12/23/2016 Knauf International PPG Industries, Certain Assets Plaka plasterboard and cement-board business — — —

12/22/2016Enerdynamic Hybrid Technologies Corp.

EEB Systems LLC Modular housing manufacturer for the U.S. military — — —

12/21/2016 dormakaba Holding AGStanley Black & Decker, Certain Assets

Certain mechanical security and commercial hardware businesses

$725.0 — —

12/21/2016 Home Brands Group LLC ForzaStone, LLC Residential stone panel manufacturer — — —

12/21/2016 HB McClure Company REMCO, Inc., Certain Assets Residential mechanical system services — — —

12/19/2016 Harvey Industries, Inc. Soft-Lite, LLC Replacement windows and sliding doors manufacturer — — —

12/19/2016 Parr Lumber Country Homes Building Supply Building materials provider — — —

12/16/2016 Beacon Roofing Supply, Inc.BJ Building Material Supply Company

Building materials and services provider — — —

12/15/2016 Armstrong World Industries, Inc. Tectum Inc. Wood fiber acoustical panels provider — — —

12/14/2016 Apogee Enterprises Sotawall Limited Curtain wall systems manufacturer and installer $135.0 1.4x —

12/13/2016 Inteplast Group Gossen Corporation Vinyl building products manufacturer $5.5 — —

12/12/2016 Wichita Cabinet Company TA Millwork Custom millwork provider — — —

12/12/2016 Endura Products Contact IndustriesEngineered veneered mouldings and millwork provider

— — —

12/09/2016 CVC Capital Partners Limited Corialis International NVAluminum systems for windows, doors, sliding elements, roofs, and other building products

— — —

12/08/2016 William B. Morse Lumber Co. Rochester Lumber Company Wood and lumber products manufacturer — — —

12/07/2016 Wynnchurch Capital, LLC Rosboro LLC Lumber and engineered wood products manufacturer — — —

12/06/2016 The Cook & Boardman Group, LLC Delta Door and Hardware, LLCCommercial doors, frames, and hardware distributor and installer

— — —

12/06/2016 GMS Inc. Interior Products Supply Interior building supplies provider — — —

12/06/2016 Tecta America Corp. JB Roofing Commercial roofing and industrial services provider — — —

12/05/2016 SRS Distribution, Inc. Metro Roofing Supplies, Inc. Building materials distributor — — —

12/01/2016 Tum-A-Lum Lumber Company Marson & Marson Lumber, Inc. Lumber, hardware, and building materials distributor — — —

11/28/2016 Clio Holdings, LLC Top Master, Inc. Counter tops manufactuer and installer — — —

11/21/2016 Koch Industries, Inc. Guardian Industries Corp. Float glass and fabricated glass products manufacturer — — —

11/21/2016 Wat-Kem Mechanical, Inc. D&L Plumbing Services, LLC Plumbing contracting services provider — — —

11/20/2016 Boral Industries Headwaters Incorporated Building materials provider $2,564.4 2.6x 14.8x

11/18/2016 Hardware Distribution Business, Inc. World and Main, LLC Hardware and building materials distributor — — —

11/15/2016 Lawson Products, Inc. Mattic Industries Ltd. Fasteners, hardware, and tooling products provider $3.5 — —

11/14/2016 Installed Building Products, Inc. 3R Products & Services, LLC Interior products installer — — —


$ in millions

9

Recent M&A: 2016Q4




11/14/2016 Kingspan Group Bristol Fiberlite Industries Skylights manufacturer $37.0 — —

11/09/2016 GCP Applied Technologies Halex Corporation Flooring installation products manufacturer $47.0 1.0x —

11/09/2016 Clayton Homes, Inc. Doyle Mobile Homes, Inc. Mobile homebuilder in Kentucky — — —

11/07/2016 Toll Brothers Inc. Coleman Real Estate Holdings Single-family homebuilder in western U.S. — — —

11/03/2016 PrimeSource Building ProductsNortheast Wholesale Nail & Fastener Supply Co.

Building products supplier in the Northeast — — —

11/03/2016 Installed Building Products, Inc. M.G.D. Inc. Garage doors installer — — —

11/03/2016 Ponypic, LLC Patriot Flooring Supply, Inc. Hardwood and laminate flooring products distributor — — —

11/02/2016Regional Brands, Inc.; Lorraine Capital

B.R. Johnson, Inc. Window, door, and hardware provider $15.4 — 5.2x

11/01/2016 Clayton Properties Summit Custom Homes Single-family homebuilder in Missouri and Kansas — — —

10/26/2016 Daiwa House Industry Co. Stanley Martin Communities Virginia-based homebuilder $307.2 0.7x —

10/19/2016 Consolidated Lumber Company Fullerton Lumber Co.Building products and materials supplier in the Upper Midwest

— — —

10/18/2016 Shaw Industries Group USFloors Inc Flooring products manufacturer — — —

10/17/2016 Installed Building Products, Inc. EastCoast Insulators Insulation and siding installation services provider — — —

10/14/2016 Guardian Building Products Hawkeye Building Distributors Building materials and products distributor — — —

10/13/2016 Elementia, S.A.B. de C.V. Giant Cement Holding Cement manufacturer $400.0 1.7x —

10/13/2016 Virginia Tile Company RBC Tile & Stone, LLC Tile and stone wholesale distributor — — —

10/11/2016 Clio Holdings, LLC Granite Source Granite tops manufacturer — — —

10/07/2016 The Waldinger Corporation Ray Omo, Inc. Contracting services provider for A/C and plumbing — — —

10/06/2016 Republic Industries, Inc. Elite Multifamily Interiors, LLC Granite, quartz, and marble surfaces manufacturer — — —

10/05/2016 UPP Holdings Limited Taiga Building Products Limited Building products wholesale distributor $188.8 0.2x 6.1x

10/04/2016 Lehigh Hanson Materials ESSROC Canada, Inc. Cement manufacturer $281.9 — —

10/03/2016 Clements Concrete Co. Low's Ready Mix, Inc. Sand, gravel, and concrete products manufacturer — — —

10/01/2016 HCI Equity Partners The Delaney Co. Door and other hardware products manufacturer — — —


$ in millions

10

Cherry Tree Building Products Index


($ in millions) Market Enterprise LTM LTM LTM Gross EBITDA Enterprise Value/ 3-Yr Rev

Company Cap Value Revenue Gross Profit EBITDA Margin Margin Revenue EBITDA Growth

Cherry Tree Building Products Index $2,311.0 $3,219.5 $3,041.8 $688.2 $344.8 24.7% 12.1% 1.3x 10.6x 9.0%

Median Summary

Distributors $1,054.4 $1,526.0 $2,472.8 $596.9 $155.6 22.5% 5.7% 0.6x 10.9x 8.5%

Homebuilders $4,005.6 $6,600.7 $5,169.5 $1,039.3 $527.0 19.6% 10.2% 1.0x 9.9x 19.8%

HVAC $13,115.1 $14,935.5 $8,527.2 $2,605.8 $1,215.5 31.0% 15.1% 1.9x 13.5x 7.1%

Roofing, Siding & Insulation $4,291.8 $5,282.2 $2,482.2 $763.0 $421.5 29.6% 17.8% 1.6x 11.5x 6.5%

Windows & Doors $659.8 $869.7 $832.0 $217.3 $89.8 26.9% 11.7% 1.1x 9.7x 14.7%

Plumbing & Cabinetry $7,481.4 $7,919.4 $5,226.4 $1,940.1 $694.3 34.4% 13.6% 1.4x 10.1x 6.3%

Floors & Surfaces $1,764.5 $2,113.5 $2,121.7 $584.4 $223.8 29.0% 12.2% 1.2x 9.5x 4.1%

Lumber & Wood Products $2,132.7 $2,790.7 $3,034.5 $449.8 $313.0 21.0% 12.7% 1.4x 10.9x 7.9%

Cement, Concrete & Aggregates $12,636.4 $17,110.3 $3,522.7 $1,023.0 $947.5 31.9% 19.9% 1.9x 11.3x 9.8%

Distributors

Beacon Roofing Supply, Inc. $2,752.4 $3,853.5 $4,127.1 $1,013.1 $357.1 24.5% 8.7% 0.9x 10.8x 22.6%

Bluelinx Holdings Inc. $69.5 $443.5 $1,887.5 $228.7 $30.0 12.1% 1.6% 0.2x 14.8x -3.6%

BMC Stock Holdings, Inc. $1,302.4 $1,695.7 $2,856.3 $688.2 $169.9 24.1% 5.9% 0.6x 10.0x —

Boise Cascade Company $905.1 $1,356.3 $3,868.2 $512.1 $160.3 13.2% 4.1% 0.4x 8.5x 6.9%

Builders FirstSource, Inc. $1,281.5 $3,219.5 $6,276.2 $1,587.5 $342.0 25.3% 5.4% 0.5x 9.4x 64.6%

CanWel Building Materials Group Ltd. $275.3 $395.7 $729.5 $96.3 $36.0 13.2% 4.9% 0.5x 11.0x 9.6%

GMS Inc. $1,203.7 $1,831.8 $2,089.3 $681.8 $150.9 32.6% 7.2% 0.9x 12.1x —

Goodfellow Inc. $56.6 $136.3 $433.9 $71.1 $5.9 16.4% 1.4% 0.3x — —

Hardwoods Distribution Inc. $282.0 $356.5 $526.4 $95.4 $32.7 18.1% 6.2% 0.7x 10.9x 24.9%

Huttig Building Products, Inc. $165.0 $232.8 $704.9 $147.6 $26.0 20.9% 3.7% 0.3x 9.0x 8.5%

Watsco, Inc. $4,855.9 $5,307.3 $4,210.9 $1,028.6 $361.8 24.4% 8.6% 1.3x 14.7x 4.6%

Wolseley plc $15,256.7 $16,439.1 $19,160.9 $5,417.6 $1,379.6 28.3% 7.2% 0.9x 11.9x 3.1%

25th Percentile $247.7 $385.9 $723.3 $134.8 $32.0 15.6% 4.0% 0.3x 9.7x 4.6%

Median $1,054.4 $1,526.0 $2,472.8 $596.9 $155.6 22.5% 5.7% 0.6x 10.9x 8.5%

75th Percentile $1,664.9 $3,378.0 $4,148.1 $1,016.9 $345.7 24.7% 7.2% 0.9x 12.0x 22.6%

Homebuilders

Beazer Homes USA, Inc. $425.9 $1,528.9 $1,822.1 $253.2 $34.0 13.9% 1.9% 0.8x — 12.3%

CalAtlantic Group, Inc. $4,005.6 $7,564.2 $6,192.7 $1,393.0 $810.3 22.5% 13.1% 1.2x 9.3x 52.3%

D.R. Horton, Inc. $10,286.1 $12,286.1 $12,157.4 $2,479.7 $1,440.4 20.4% 11.8% 1.0x 8.5x 24.8%

KB Home $1,375.9 $3,716.0 $3,594.6 $562.5 $176.7 15.6% 4.9% 1.0x — 19.7%

Lennar Corporation $9,669.8 $15,591.8 $10,950.0 $2,393.8 $1,327.6 21.9% 12.1% 1.4x 11.7x 22.6%

M/I Homes, Inc. $630.3 $1,278.1 $1,637.0 $321.1 $118.3 19.6% 7.2% 0.8x 10.8x 19.8%

M.D.C. Holdings, Inc. $1,340.7 $2,102.7 $2,169.4 $379.6 $138.1 17.5% 6.4% 1.0x 15.2x 10.4%

Meritage Homes Corporation $1,418.9 $2,450.8 $2,942.3 $554.0 $247.5 18.8% 8.4% 0.8x 9.9x 21.3%

NVR, Inc. $6,254.1 $6,600.7 $5,635.0 $1,043.2 $682.3 18.5% 12.1% 1.2x 9.7x 12.8%

PulteGroup, Inc. $6,135.2 $8,980.2 $7,237.0 $1,641.0 $975.7 22.7% 13.5% 1.2x 9.2x 9.0%

Toll Brothers Inc. $5,084.8 $8,232.5 $5,169.5 $1,039.3 $527.0 20.1% 10.2% 1.6x 15.6x 24.6%

25th Percentile $1,358.3 $2,276.7 $2,555.9 $466.8 $157.4 18.0% 6.8% 0.9x 9.3x 12.6%

Median $4,005.6 $6,600.7 $5,169.5 $1,039.3 $527.0 19.6% 10.2% 1.0x 9.9x 19.8%

75th Percentile $6,194.7 $8,606.3 $6,714.9 $1,517.0 $893.0 21.1% 12.1% 1.2x 11.7x 23.6%


As of January 3, 2017




HVAC

AAON, Inc. $1,759.4 $1,718.1 $389.5 $121.2 $94.4 31.1% 24.2% 4.4x 18.2x 6.1%

Daikin Industries,Ltd. $26,657.4 $29,211.1 $19,845.0 $7,124.4 $3,128.0 35.9% 15.8% 1.5x 9.3x 8.8%

Ingersoll-Rand Plc $19,615.1 $22,247.4 $13,475.9 $4,169.4 $1,937.3 30.9% 14.4% 1.7x 11.5x 8.1%

Lennox International Inc. $6,615.2 $7,623.7 $3,578.5 $1,042.1 $493.6 29.1% 13.8% 2.1x 15.4x 4.5%

25th Percentile $5,401.2 $6,147.3 $2,781.3 $811.9 $393.8 30.5% 14.2% 1.6x 10.9x 5.7%

Median $13,115.1 $14,935.5 $8,527.2 $2,605.8 $1,215.5 31.0% 15.1% 1.9x 13.5x 7.1%

75th Percentile $21,375.6 $23,988.3 $15,068.2 $4,908.1 $2,235.0 32.3% 17.9% 2.7x 16.1x 8.2%

Roofing, Siding & Insulation

Continental Building Products, Inc. $931.8 $1,163.8 $453.5 $121.6 $101.6 26.8% 22.4% 2.6x 11.5x 6.5%

Headwaters Incorporated $1,748.5 $2,451.1 $974.8 $288.2 $173.2 29.6% 17.8% 2.5x 14.1x 11.5%

James Hardie Industries plc $7,066.8 $7,593.3 $1,823.2 $672.0 $454.7 36.9% 24.9% 4.2x 16.7x 8.9%

Kingspan Group plc $4,861.5 $5,282.2 $3,339.6 $1,003.6 $416.7 30.1% 12.5% 1.6x 12.7x 20.4%

Owens Corning $5,888.1 $7,984.1 $5,591.0 $1,375.0 $1,041.0 24.6% 18.6% 1.4x 7.7x 2.6%

Rockwool International A/S $3,677.3 $3,615.6 $2,482.2 $1,640.4 $421.5 66.1% 17.0% 1.5x 8.6x 3.5%

USG Corporation $4,291.8 $5,532.8 $3,864.0 $763.0 $607.0 19.7% 15.7% 1.4x 9.1x 3.7%

25th Percentile $2,712.9 $3,033.3 $1,399.0 $480.1 $295.0 25.7% 16.3% 1.4x 8.8x 3.6%

Median $4,291.8 $5,282.2 $2,482.2 $763.0 $421.5 29.6% 17.8% 1.6x 11.5x 6.5%

75th Percentile $5,374.8 $6,563.1 $3,601.8 $1,189.3 $530.9 33.5% 20.5% 2.5x 13.4x 10.2%

Windows & Doors

Deceuninck NV $318.2 $436.0 $735.9 $217.0 $71.2 29.5% 9.7% 0.6x 6.1x 6.7%

Masonite International Corporation $2,010.9 $2,447.6 $1,978.4 $408.1 $224.8 20.6% 11.4% 1.2x 10.9x 4.6%

PGT Innovations, Inc. $558.6 $775.9 $442.1 $135.1 $68.6 30.6% 15.5% 1.8x 11.3x 25.7%

Ply Gem Holdings, Inc $1,118.7 $1,986.9 $1,880.0 $458.7 $227.0 24.4% 12.1% 1.1x 8.8x 13.0%

Quanex Building Products Corporation $718.6 $962.6 $928.2 $217.5 $102.6 23.4% 11.1% 1.0x 9.4x 18.7%

Tyman plc $601.0 $776.8 $503.9 $177.3 $77.0 35.2% 15.3% 1.5x 10.1x 16.4%

25th Percentile $569.2 $776.1 $561.9 $187.2 $72.6 23.7% 11.1% 1.0x 8.9x 8.3%

Median $659.8 $869.7 $832.0 $217.3 $89.8 26.9% 11.7% 1.1x 9.7x 14.7%

75th Percentile $1,018.7 $1,730.9 $1,642.1 $360.5 $194.2 30.3% 14.5% 1.5x 10.7x 18.1%

Plumbing & Cabinets

American Woodmark Corporation $1,240.7 $1,051.1 $981.8 $208.9 $115.6 21.3% 11.8% 1.1x 9.1x 12.4%

Fortune Brands Home & Security, Inc. $8,315.6 $9,624.2 $4,908.0 $1,757.7 $753.3 35.8% 15.3% 2.0x 12.8x 8.9%

Masco Corporation $10,581.3 $12,543.3 $7,313.0 $2,415.0 $1,195.0 33.0% 16.3% 1.7x 10.5x -3.0%

Toto Ltd. $6,647.1 $6,214.5 $5,544.7 $2,122.5 $635.3 38.3% 11.5% 1.1x 9.8x 3.7%

25th Percentile $5,295.5 $4,923.6 $3,926.4 $1,370.5 $505.3 30.1% 11.7% 1.1x 9.6x 2.0%

Median $7,481.4 $7,919.4 $5,226.4 $1,940.1 $694.3 34.4% 13.6% 1.4x 10.1x 6.3%

75th Percentile $8,882.0 $10,354.0 $5,986.8 $2,195.6 $863.7 36.4% 15.6% 1.8x 11.1x 9.8%



12Sources: Capital IQ, Cherry Tree Research




Floors & Surfaces

Armstrong Flooring, Inc. $564.9 $542.7 $1,201.6 $232.3 $62.1 19.3% 5.2% 0.5x 8.7x —

Interface, Inc. $1,218.1 $1,321.9 $965.7 $376.9 $136.3 39.0% 14.1% 1.4x 9.7x 0.3%

Mohawk Industries, Inc. $14,962.9 $17,596.6 $8,774.5 $2,799.4 $1,699.0 31.9% 19.4% 2.0x 10.4x 8.5%

Tarkett S.A. $2,311.0 $2,905.1 $3,041.8 $791.8 $311.2 26.0% 10.2% 1.0x 9.3x 4.1%

25th Percentile $1,054.8 $1,127.1 $1,142.6 $340.8 $117.8 24.4% 9.0% 0.8x 9.2x 2.2%

Median $1,764.5 $2,113.5 $2,121.7 $584.4 $223.8 29.0% 12.2% 1.2x 9.5x 4.1%

75th Percentile $5,474.0 $6,577.9 $4,475.0 $1,293.7 $658.1 33.7% 15.4% 1.5x 9.9x 6.3%

Lumber & Wood Products

Canfor Corporation $1,485.9 $1,970.6 $3,233.8 $955.5 $368.1 29.5% 11.4% 0.6x 5.4x 11.2%

Louisiana-Pacific Corporation $2,780.5 $3,053.2 $2,146.3 $449.8 $261.6 21.0% 12.2% 1.4x 11.7x 1.4%

Norbord Inc. $2,132.7 $2,790.7 $1,699.0 $329.0 $313.0 19.4% 18.4% 1.6x 8.9x 7.6%

Trex Company, Inc. $2,074.6 $2,051.6 $473.5 $180.9 $112.3 38.2% 23.7% 4.3x 18.3x 13.4%

Universal Forest Products, Inc. $2,117.5 $2,206.3 $3,034.5 $449.5 $201.6 14.8% 6.6% 0.7x 10.9x 7.9%

West Fraser Timber Co. Ltd. $2,786.6 $3,082.5 $3,318.8 $1,042.3 $420.6 31.4% 12.7% 0.9x 7.3x 8.5%

Weyerhaeuser Co. $22,711.1 $30,764.1 $7,871.0 $1,639.0 $1,765.0 20.8% 22.4% 3.9x 17.4x 1.7%

25th Percentile $2,096.0 $2,129.0 $1,922.7 $389.2 $231.6 20.1% 11.8% 0.8x 8.1x 4.7%

Median $2,132.7 $2,790.7 $3,034.5 $449.8 $313.0 21.0% 12.7% 1.4x 10.9x 7.9%

75th Percentile $2,783.5 $3,067.9 $3,276.3 $998.9 $394.4 30.5% 20.4% 2.8x 14.6x 9.8%

Cement, Concrete & Aggregates

Boral Limited $4,645.2 $5,277.4 $3,211.7 $1,031.0 $378.7 32.1% 11.8% 1.6x 13.9x 1.2%

CEMEX, S.A.B. de C.V. $11,098.8 $25,906.9 $12,884.1 $4,474.7 $2,584.6 34.7% 20.1% 2.0x 10.0x 8.9%

CRH plc $28,255.4 $36,330.4 $29,938.4 $9,507.5 $3,039.6 31.8% 10.2% 1.2x 12.0x 14.8%

Eagle Materials Inc. $4,826.8 $5,241.5 $1,159.7 $286.7 $344.8 24.7% 29.7% 4.5x 15.2x 13.0%

HeidelbergCement AG $18,264.7 $29,266.4 $16,103.5 $9,816.2 $2,822.0 61.0% 17.5% 1.8x 10.4x 2.3%

LafargeHolcim Ltd. $31,598.2 $51,577.4 $28,647.5 $9,311.2 $5,636.0 32.5% 19.7% 1.8x 9.2x 9.6%

Martin Marietta Materials, Inc. $14,173.9 $15,881.1 $3,468.5 $868.8 $917.7 25.0% 26.5% 4.6x 17.3x 22.0%

Summit Materials, Inc. $1,849.9 $3,424.0 $1,604.6 $535.8 $346.9 33.4% 21.6% 2.1x 9.9x —

U.S. Concrete, Inc. $1,014.2 $1,400.6 $1,113.0 $228.4 $132.0 20.5% 11.9% 1.3x 10.6x 23.9%

Vulcan Materials Company $16,491.0 $18,339.4 $3,577.0 $1,015.0 $977.2 28.4% 27.3% 5.1x 18.8x 9.8%

25th Percentile $4,690.6 $5,250.5 $2,006.3 $619.0 $354.9 25.9% 13.3% 1.7x 10.1x 8.9%

Median $12,636.4 $17,110.3 $3,522.7 $1,023.0 $947.5 31.9% 19.9% 1.9x 11.3x 9.8%

75th Percentile $17,821.2 $28,426.5 $15,298.7 $8,102.1 $2,762.7 33.2% 25.2% 3.9x 14.9x 14.8%



13Sources: Capital IQ, Cherry Tree Research

ABOUT CHERRY TREE

History and BackgroundCherry Tree is a private investment banking and wealth management firm headquartered in Minneapolis, Minnesota. Our firm specializes in serving middle market companies and their owners, whether private, public, or divisions of larger corporations. Founded in 1980, Cherry Tree managed several successful institutional private funds focusing on platform acquisitions. Those funds led to more than 300 financings, 26 public offerings, and 41 strategic sales. In 1996 the firm diversified into investment banking services to take advantage of our long history and position in the market. In 2003 we added wealth management to our operations by acquiring and growing our existing business. Our professionals collectively have been members of more than 80 boards of directors, worked with more than 250 different companies, and advised on hundreds of financings and M&A transactions.

Broad Market ExpertiseCherry Tree has been working with middle market companies for more than 35 years. Our core M&A activity is sell-side engagements with middle market companies where ownership wants to achieve some liquidity goals or desires to recapitalize its business to better position the company for future growth. Additionally, we represent buy-side clients attempting to add acquisition strategies to complement their organic growth efforts. We are experts in the capital markets, having previously managed four private funds. Our firm primarily has been focused on investment banking transactions since 1996 and has an exceptional team of dedicated investment banking professionals. Most of our managing directors have had C-level operating experience with backgrounds as CEOs or CFOs. Collectively, they represent more than 200 years of transaction and operating experience.

ResearchWe distinguish our firm by conducting comprehensive research and publishing our findings in reports that provide in-depth analyses of selected industries and overall market conditions. For each client assignment, we apply our internal research capabilities and our deep domain expertise in relevant markets in order to provide the highest value to our clients. Some of ourindustry research is sponsored by our clients with an interest in specific industry segments.

Contacting Cherry TreeFor more information, please contact one of our professionals listed below, or visit us at www.cherrytree.com.

Paul Novak Dave LatzkeManaging Director Managing Director

[email protected] [email protected] 952.253.6032

Additional Recent Cherry Tree research:

• Media and Marketing Services, Q1 2016 (Jim Dolan, [email protected], 952.253.6012)

• Technology Enabled Business Services, Q1 2016 (Mik Gusenius, [email protected], 952.253.6005)

• Education For-Profit: PreK-12, Q4 2015 (Chad Johnson, [email protected], 952.253.6010)

• Information Technology Services, Q3 2015 (Elmer Baldwin, [email protected], 952.253.6001)

© Cherry Tree & Associates | 2017

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Important Disclosures

The information included in this publication has been obtained from public sources, and is not based upon private or confidential Cherry Tree information. Cherry Treegathers its data from sources it considers reliable. However, it does not guarantee the accuracy or completeness of the information provided within this publication. Anyopinions presented reflect the current judgment of the authors and are subject to change. Cherry Tree makes no warranties, expressed or implied, regarding the accuracy ofthis information or any opinions expressed by the authors. Officers, directors, partners of Cherry Tree and Cherry Tree proprietary investment funds may have positions in thesecurities of the companies discussed, and certain affiliates of Cherry Tree may recommend to specific clients the purchase and sale of securities discussed in thepublication. This publication does not constitute a recommendation with respect to the securities of any company discussed herein, and it should not be construed as such.Cherry Tree or its affiliates may from time to time provide investment banking or related services to these companies. Like all Cherry Tree employees, the authors of thispublication receive compensation that is affected by overall firm profitability. We undertake no obligation to update any information in this publication. 

The Building Products Index is a hypothetical index, and does not reflect an actual investment portfolio. Comparisons between the Building Products Index and other indicesare for illustrative purposes only.  Correlations in performance information for the Building Products Index and other indices should not be relied upon as indicative of risksinvolved in owning or holding a portfolio of securities similar to the Building Products Index. Past performance should not be relied upon as indicative of future performance.

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