PGT Innovations, Inc. PGTI has inked a deal to acquire Florida-based manufacturer and installer of factory-direct, energy-efficient windows and doors — NewSouth Window Solutions ("NewSouth") — for a purchase price of $92 million in cash, subject to adjustments.
Strategic and Financial Benefits From This Acquisition
NewSouth is the only vertically-integrated window dealer in Florida. It currently has eight retail showrooms, with an additional showroom in Charleston, SC. Also, the direct-to-consumer model, and extensive advertising and marketing programs will benefit PGT Innovation’s legacy brands and dealer network.
NewSouth has a solid track record of sales growth. The company is projected to generate net sales within $82-$85 million, EBITDA margin in mid-teens (inclusive of acquisition synergies), retail margins similar to PGT Innovation’s legacy business and strong margins in its non-impact product line. Additionally, it anticipates compounded annual growth rate for net sales to be 29% from 2015 to 2019.
Notably, the buyout will be in sync with the company’s strategy of expanding presence outside core markets served, with showroom openings planned for northern Florida and coastal states in the South. This acquisition will provide PGT Innovations with the opportunity to serve a broader residential market, primarily driven by replacement projects and relatively smaller order sizes.
The company expects approximately $2 million cost synergies by leveraging its manufacturing expertise across the entire supply chain. Also, it projects net leverage ratio to remain below 2.6 times. Importantly, the buyout is expected to be completed in first-quarter 2020, subject to customary closing conditions.
Market Expansion Spree Bodes Well
In a bid to expand market presence and product portfolio, the company had acquired Western Window Systems (WWS) within the Western segment in 2018. In the first nine months of 2019, WWS generated $105 million sales. During the said period, PGT Innovation’s total net sales grew 12.1% year over year on the back of strong WWS contribution, partially offset by decline in sales from the repair and remodel market, and adverse weather conditions. Adjusted EBITDA grew 9.2% year over year.
For the full year, the company expects to generate net sales between $730 million and $740 million, adjusted EBITDA within $126-$130 million, and adjusted earnings per share in the range of 79-84 cents. However, it has been witnessing unfavorable sales growth due to decrease in orders and shipments caused by Hurricane Dorian.
Also, the company — which shares space with United Rentals URI, Gibraltar Industries, Inc. ROCK and Armstrong World Industries, Inc. AWI in the Zacks Building Products - Miscellaneous industry — is experiencing softness in the repair and remodeling market over the last few quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Its shares have declined significantly in the past six months. The above-mentioned headwinds are plaguing this Zacks Rank #5 (Strong Sell) firm. Nonetheless, the company remains confident to deliver improved results going forward, backed by improving construction market and recent acquisitions.
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