News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
Matt Ogden, managing principal, Building Industry Partners / PROSALES / July 23, 2013
Making sense of the recent flurry of building-products public offerings
In the past two months, three familiar building products names—Ply Gem, HD Supply and Stock Building Supply—have all filed for or completed initial public offerings (IPOs), their first sale of equity shares to the general public in exchange for capital.
We tend to think of IPOs as a stage reserved only for select private companies that have posted years of stellar growth or financial performance; the major league debut of sorts for minor league phenoms. We also associate IPOs with an exit or liquidity event; the ultimate pot of gold for companies’ early investors and entrepreneurs, usually during periods of robust stock market, sector, and business performance.
IPO volume is accelerating across most U.S. sectors with the climb in stock market and corporate profits over the past two years. But while housing continues to strengthen, single-family starts are still far from historic average levels. Building products companies’ sales and profits are improving, but still far from historically strong. And the costs, liability, scrutiny, and resource burdens that public companies face has only increased in recent years. So why the recent flurry of building-products company IPO activity?
Here are some explanations:
Cheap Equity Capital: IPOs are compelling capital-raising avenues for companies that can qualify and want substantial equity capital to de-lever (read: de-risk) their balance sheet and/or grow aggressively (whether organically or through acquisitions). Public equity provides the lowest cost of equity capital available, meaning the least amount of equity ownership given up per dollar of capital received. Furthermore, once public, a well-performing company can continue to tap this vast source of cheap capital.