July 19, 2018

Houston manufacturer to merge with North Carolina co. in all-stock deal valued at $1.2B

Two exterior building products companies — one that focuses on commercial construction and another that focuses on residential construction — plan to combine in an all-stock deal. 

Houston-based NCI Building Systems Inc. (NYSE: NCS) will merge with Cary, North Carolina-based Ply Gem Parent LLC to create a yet-to-be named company based in Cary but with a “significant presence” in Houston, according to a July 17 press release. However, both companies will retain their existing established brands. Based on NCI's closing share price on July 17, the combined company is expected to have an equity value of $2.6 billion.

NCI will issue 58.7 million shares to Ply Gem shareholders — worth about $1.2 billion, based on the July 17 closing price of NCI shares. That will give NCI a 53 percent majority ownership when the deal closes, which is expected in the fourth quarter of 2018, per the release. In its first year of operating, the combined company is expected to generate about $4.5 billion in revenue and between $660 million and $680 million in earnings before interest, taxes, depreciation and amortization. The companies also estimate that the merger will create $150 million in annual cost savings over three years.

The combined company will assume Ply Gem’s existing loans, senior unsecured notes and revolving credit facilities. Ply Gem’s existing asset-based revolving facility will be increased by $215 million to provide additional working capital and replace NCI’s existing asset-based revolving facility, and a new $475 million incremental term loan will be used to retire NCI’s existing term loan, repay any outstanding amounts under NCI’s existing revolving facility and pay transaction fees and expenses.  Neither NCI nor Ply Gem disclosed any potential impacts to the workforce, but the top leadership roles were announced:  NCI’s current chairman, James Metcalf, will be chairman and CEO of the new company.  NCI’s current CEO, Donald Riley, will be CEO of the NCI division.  Ply Gem President, Chairman and CEO Gary Robinette will serve as chairman emeritus and special adviser.  Ply Gem CFO Shawn Poe will be CFO of the combined company.

It’s been a busy year for Ply Gem. The formerly publicly traded company was acquired for $2.4 billion by New York-based private investment firm Clayton, Dubilier & Rice, which merged Ply Gem with Welcome, North Carolina-based Atrium Windows & Doors. As such, Golden Gate Capital — a major shareholder of Ply Gem via its holding in Atrium — will end up owning about 16 percent of the new company when the NCI deal closes, according to Reuters.  NCI's financial adviser on the deal is Evercore, and Wachtell, Lipton, Rosen & Katz is providing legal counsel to NCI. Credit Suisse is the financial adviser to Ply Gem. Debevoise & Plimpton is providing legal counsel to Ply Gem and to CD&R. Credit Suisse and RBC Capital Markets LLC are providing committed financing for the transaction.

Shares of NCI closed at $20.70 on July 17 and opened at $20.65 the next day. As of 11:40 a.m. Central Time, the stock was trading around $18.25, down 11.84 percent.  NCI Building Systems is a manufacturer of metal products for the nonresidential building industry. The company is the 55th-largest public company in the Houston area, based on its $1.77 billion in revenue in 2017, and it employs 5,300 globally, according to HBJ research.  Ply Gem produces materials for single- and multifamily homes, with an estimated $1.5 billion in sales, according to Plastics News, which also reports that the company has about 11,600 employees and 35 facilities in North America.