Building Products & Materials Group Overview

Introduction

Harris Williams is pleased to present our Building Products and Materials Industry Update for November 2018.  This report provides commentary and analysis on current capital market trends and merger and acquisition dynamics within the global building products and materials industry. 

We hope you find this edition helpful and encourage you to contact us directly if you would like to discuss our perspective on current industry trends and M&A opportunities or our relevant industry experience.

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What We’re Reading

New Home Sales Drop 8.9 Percent in October as Affordability Challenges Persist1

National Association of Home Builders  11/28/2018

Sales of newly built, single-family homes fell to a seasonally adjusted annual rate of 544,000 units in October after an upwardly revised September report, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the lowest sales pace since December 2016. However, on a year-to-date basis, sales are up 2.8 percent from this time in 2017.

“The November reading is consistent with reports from our builders, who say that the job market and demographic tailwinds bode well for housing demand but rising interest rates and home prices are forcing customers to take a pause,” said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La. “Policymakers should see this drop in sales as an indicator that housing affordability will continue to slow down the market.”

Read the full article here.

New Construction Starts in 2019 to Hold Steady with 2018 Amount2

Construction Dive  11/26/2018

The value of all types of construction starts rose 21.0 percent in October from September 2018 to an adjusted annual rate of $864 billion, nearly erasing the previous three months’ total declines of 22.0 percent, according to Dodge Data & Analytics. From January 2018 to October 2018, the unadjusted value of starts was up 1.0 percent to $679 billion compared to the same period in 2017, a figure that would have shown a 3.0 percent increase had it not been for a 45.0 percent downturn in electric utility and gas plant starts.

Read the full article here.

Homebuilder Confidence Plummets to the Lowest Level in More than Two Years3

CNBC  11/19/2018

Rising mortgage rates and continued home price growth are hurting affordability and fast becoming a toxic cocktail for the nation’s homebuilders. Sentiment among homebuilders dropped 8 points in November to 60 in the National Association of Home Builders/Wells Fargo Housing Market Index. That is the lowest reading since August 2016, but anything above 50 is still considered positive. The index stood at 69 in November of last year and hit a cyclical high of 74 last December.

“Builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices,” said NAHB Chairman Randy Noel, a builder from LaPlace, Louisiana.

Of the index’s three components, current sales conditions fell 7 points to 67, sales expectations in the next six months dropped 10 points to 65, and buyer traffic registered an 8-point drop to 45. Buyer traffic had broken out of negative territory earlier this year but now appears to be back in it solidly.

Read the full article here.

Construction Material Prices Rebound in September4

Associated Builders and Contractors  11/09/2018

Construction prices rose 0.5 percent in October and are 7.9 percent high than at the same time a year ago, according to an analysis of Bureau of Labor Statistics Producer Price Index data conducted by Associated Builders and Contractors. Prices for nonresidential construction inputs also increased 0.5 percent on a month-over-month basis and are up by more than 8 percent on a year-over-year basis.

Read the full article here.

Why the Housing Market Is Slumping Despite a Booming Economy5

New York Times  11/15/2018

Sales of new single-family homes were down 22 percent in September from their recent high in November 2017, and existing home sales in September were down 10 percent. This tepid residential investment subtracted from G.D.P. growth in each of the first three quarters of 2018.

Home prices have not declined nationally, at least according to the most widely followed indexes. But their rate of increase has declined, and more and more home sellers are finding they must reduce asking prices to find a buyer.

Read the full article here.

Public Markets6

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*Calculated as (EBITDA – Capex) / EBITDA

Public Comparables6

Building Products

As of November 30, 2018

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Building Products Distributors

As of November 30, 2018

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Construction Materials

As of November 30, 2018

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Relevant Transactions6

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Representative Building Products & Materials Transactions

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1. NAHB

2. Construction Dive

3. CNBC

4. Associated Builders & Contractors

5. New York Times

6. FactSet

 

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