• Date

    25 Mar 2022
  • Category

    Corporate Finance

Sector Trends in the Glass & Glazing Sector: An M&A Overview

The Glass and Glazing sector has experienced significant growth in Merger and Acquisition (M&A) activity over the past few years. This, in part, stems from a concentration of acquisition based growth by some large companies within the sector and other Private Equity backed deals.

Azets Corporate Finance has a depth of experience in the Glass and Glazing sector, having advised on a number of transactions and most recently the Glass. These transactions have enabled the team to build relationships with acquisitive trade buyers, along with some of the most active financial buyers with current investments in the sector.

Sector Trends

Consumer Spending

Over the course of the COVID-19 pandemic, consumer spending has re-directed towards home improvements from other sectors which traditionally took up a larger proportion of household outgoings such as travel and leisure.

Looking at trends in data over the past two years, the increase in spending has not been consistent due to the inability to carry out installations during certain lockdown periods. However, the overall trend is positive; for example, according to Fensa installation data there was an 11.2% increase in window installations in Q1 of 2021 vs Q1 of 2020, and a 1.3% increase vs Q1 of 2019.

Environmentally Friendly Trends

In recent years, making homes more environmentally friendly has had a strong push from environmental lobbying groups, with much focus on the large reduction in CO2 emissions that can be achieved through having A++ rated double glazing windows fitted in homes.

This also resonates with consumers due to the savings on heating costs made through installation of modern glazed windows; with this having more impact than ever in 2022 due to spiralling energy costs.

Part L and the Future Homes Standard will drive up specification and value from 2023 and this is coupled with a more generic drive for energy efficiency, comfort, and aesthetics. We are seeing more and more glass in the building envelope as well as decorative and functional glazing internally. Legislative methods are also being used to help the government reach its Net-Zero target by 2050 on both domestic and commercial buildings, with future measures anticipated in particular for commercial buildings, with consultations taking place on nondomestic buildings being zero carbon ready by 2025. These legislative changes have supported demand for environmentally friendly glass products, and a continued rise in environmental concerns is expected to facilitate demand for new innovative glass products in the coming years.

Current Issues Facing the Industry

A scarcity of raw materials and issues with global supply chains has caused both an increase in prices and an increase in lead times. These have led to both an aggressive cost increase and customer dissatisfaction due to installers being unable to start work on contracts promptly. Data from Fensa gathered from the top 10 performing local authorities in relation to installation figures, indicates that there has been a 10% increase in average cost per job in 2021 vs 2020. Whilst this is specific to window installation, it is representative of the cost increases the glass and glazing industry as a whole is facing, and the decisions being made regarding the proportion of these costs to pass on to the end consumer.

The shortage of skilled installers and surveyors is an issue impacting companies of all sizes. Recent research conducted by Building Our Skills revealed that in May 2021 there were more than 1,100 job adverts for window installers with recruiters and on job websites nationwide.

While this has brought timing pressures on margins - or in some cases projects being delayed and/or repriced – a high number of businesses are enjoying margins and profitability levels they would not have expected before the ‘perfect storm’ of Brexit and the pandemic.

M&A Activity in the Sector

The Private Equity (PE) Market has rebounded quickly after a slow-down during the start of the COVID-19 pandemic, with 2021 being a blockbuster year for activity in Europe. According to the Pitchbook Annual European PE Breakdown, both the number of deals closed and total deal value, reached an all-time high. In particular for the Glass & Glazing sector, PE has played a strong role in M&A activity. According to Oaklins, over 60% of deals in the sector have been PE backed in the past five years. A key driver in their interest in the sector is the high number of family-run businesses providing a good opportunity for local and national consolidation.

M&A Outlook

PE interest is likely to remain strong over the longer term due to the positive impact of climate change measures on the industry. More frequently, businesses are looking to invest ethically and in line with government climate targets, and the sustainability angle on the glazing industry will only become more valuable over time. PE deals in the sector have not just been buy and build strategies, but also the financing of management buy outs and other deal types,

and this is a trend we expect to continue. Several key trade players in the industry remain acquisitive into 2022, and it is expected that deal numbers will remain high this year, with key drivers behind these deals being both the targeting of new geographic regions and the expansion of product ranges.

Industry Outlook

Industry revenue is expected to increase at a compound annual rate of 3.1% over the five years through 2025-26, reaching £1.8 billion. Renewed government support for housebuilding is expected to spur a modest recovery in downstream construction markets during the opening part of the period.

However, demand from downstream commercial construction and automotive industries is anticipated to remain constrained in the short term as the economic fallout from the Covid outbreak continues to suppress consumer and business confidence. However, activity levels are projected to gather pace in the latter part of the period as economic uncertainty wanes and near-term economic prospects become clearer.

This more positive outlook is backed up by the latest GfK report from May 2021 which showed the Consumer Confidence Index, a means by which they measure the financial mood of the nation, had increased by 6 points to -9, 25 points better than in May 2020 and the ‘best’ score since the start of the pandemic.

The Barbour Home Improvement Report for 2021 states that home improvement planning applications in the second half of 2020 were more than 20% higher than over the same period the year before. As planning applications have fed through to installations, the domestic glazing market has enjoyed a buoyant period. This is alongside there already being pent up demand for repurposing commercial property to residential and an array of other uses in support of the up-and-coming generation – who work to live not live to work.

On a more conservative note, consumer spending has been driven towards home improvements as a result of various global lockdown measures, and therefore it is currently unknown how long this bubble will last and whether consumer spending levels will revert to pre-pandemic levels as the world continues to open up post-Covid.

With this in mind, the industry may face pinch points in the future when people start holidaying and pursuing their leisure activities without constraints. However, there has been a fundamental change in how people look at their homes – it’s no longer just a place to stay but a place to work, rest and play. This will give the industry legs beyond the effects of the pandemic.

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