Ply Gem Holdings Inc (PGEM) – Bought Out…

Ply Gem Holdings Inc (PGEM) – Bought Out…

We purchased this in May 2014 and get a 76% return with today’s buyout (16.8% CAGR).

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Original thesis synopsis:

David Abrams Explains How To Value Stocks

VolatilityContinued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More

This is yet another play on the housing rebound I expect to play out over the next several years. The one category I am not in currently is building products. I’ve found a small cap company (just >$1B sales) that I think is trading well below its value and has significant operating leverage going forward as housing starts (both SF and MF) increase to satisfy household formations need (currently >1M/yr). Further, they also have a significant presence in the remodeling business (45% of revenues).  They almost went under during the downturn but used that opportunity to rationalize their footprint, integrate earlier acquisitions and have come out a very lean company that just made a couple more acquisitions to solidify and expand their industry leading market share.  They recently refinanced outstanding debt increasing their available funds, extending the maturity and lowering the interest rate saving ~21M/yr.

I think this company offers two ways to profit. Improving operations and increased housing starts will significantly boost results.  Also, the company is cheap and a market leader. That makes it a prime target for an acquirer as we enter what I think is going to be a heavy M&A cycle. The building products industry remains rather fragmented and given the cycle we are entering, that makes it ripe for substantial M&A

The company is Ply Gem

The Release:

Ply Gem Holdings, Inc. Enters into a Definitive Agreement to be Acquired by Clayton, Dubilier & Rice (CD&R)

  • Ply Gem Shareholders to Receive $21.64 per Share in Cash
  • CD&R and Golden Gate Capital Enter into Definitive Agreement to Acquire Atrium Windows & Doors and Merge the Company with Ply Gem to Form Industry-Leading Building Products Company

CARY, NC and NEW YORK, NY – January 31, 2018 – Ply Gem Holdings, Inc. (NYSE:PGEM), a leading North American building products manufacturer, and Clayton, Dubilier & Rice (CD&R) announced today a definitive agreement under which CD&R funds will acquire all of the outstanding shares of Ply Gem common stock in a go-private transaction valued at approximately $2.4 billion. Ply Gem’s board of directors unanimously approved the agreement, which provides for the payment of $21.64 per share in cash to all holders of Ply Gem common stock. The cash purchase price represents a premium of approximately 20% over Ply Gem’s closing stock price on January 30, 2018. Promptly following entry into the agreement, stockholders holding greater than 50% of the outstanding shares of Ply Gem common stock executed a written consent to approve the transaction, thereby providing the required stockholder approval.

CD&R has also entered into a definitive agreement to acquire Atrium Windows & Doors and combine the company with Ply Gem to create an exterior building products company with total revenue of more than $2.4 billion in 2017. The transactions are expected to close simultaneously in the second quarter of 2018 and are subject to the receipt of customary closing conditions, including regulatory approvals. Closing of the acquisition of Ply Gem is not subject to the closing of the acquisition of Atrium. However, assuming both transactions close simultaneously, CD&R funds will own approximately 70% of the new privately-held company, and Atrium shareholders, which include funds managed by Golden Gate Capital, will hold approximately 30%.

The new Ply Gem will continue to be headquartered in Cary, NC, and Gary E. Robinette, currently Chairman and CEO of Ply Gem, will continue as Chairman and CEO. John Krenicki, a CD&R Operating Partner and former Vice Chairman of General Electric Company, will become Lead Director of the Board.

“The Ply Gem Board’s unanimous approval of this transaction is based on the conviction that it delivers superior value to shareholders,” said Gary E. Robinette, Chairman and CEO of Ply Gem. “The strategic and operational excellence of CD&R and Golden Gate will help strengthen the long-term growth of the company. This support, along with the expanded business and product portfolio of the new combined company, will establish a stronger window platform with manufacturing scale and channel distribution advantages for customers. Together with the talented Atrium team, we look forward to providing exceptional value and service to all of our customers and rewarding career opportunities for our associates.”

“We are excited to combine with Ply Gem and look forward to the synergies that will be achieved through an enhanced product breadth and stronger North American platform, which will allow us to drive topline growth and customer value,” said Ron Cauchi, Atrium CEO.

“This is a transformational milestone for two highly complementary businesses,” said Nate Sleeper, Partner at CD&R. “Together, Ply Gem and Atrium have a well-positioned platform across North America, a deep set of capabilities to serve customers, and a strong foundation for long-term growth and value creation.”

“We are pleased to continue our partnership with Atrium and look forward to working closely with Ply Gem and CD&R,” said Rajeev Amara, Managing Director of Golden Gate Capital. “We believe strongly in the long-term growth prospects of joining these two great businesses.”

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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