Strategic Move

Spend a bit of time with Joe Puishys, and it’s quickly apparent he is quite a strategist. And, while the latest move by the 58-year-old president of Apogee Enterprises may leave some asking why, the acquisition of EFCO from Pella Corp. makes sense to me on a number of levels.

First, it expands Apogee’s offerings to include some markets it underserves. Even where the products from EFCO and Apogee companies Tubelite and Wausau overlap, they do so in different corners of the market, if you will. Apogee’s companies have been known more for higher-end, more highly customized products, while EFCO has been known for more standardized ones. The sales in both of these Apogee companies directly correlate to construction market building cycles. EFCO’s projects are generally smaller but more consistent in nature.

Second, EFCO has some strengths from which Apogee could benefit, specifically its turn-around times and shipment tracking that Pella helped upgrade. And Apogee has a number of strengths that will enhance EFCO, most specifically its access to work and potential projects through its other companies.

Third, EFCO has a great potential that many believed would be hard to achieve as part of Pella. Pella acquired EFCO as the recession was destroying the residential market. It seemed like a good way for the company to diversify in a similar sphere. I have watched a fair number of these residential-commercial mergers over the years and have come to believe that when a commercial-based company acquires a residential one, it rarely works. When a residential company acquires a commercial one, it never works. The businesses, the channels to market, the end customer and the pricing models are just all too different to create the ever-elusive “synergy” they first sought. And once the residential market picks up, it becomes difficult to justify using the resources in the commercial sector.

Fourth, Apogee gains new capacity and working equipment as well as trained labor force in Monett, Mo., where cost for said labor is considered among the most reasonable in the country.

Fifth, it seems like a great deal for Apogee. “EFCO is a growing and profitable company, with annual revenues of more than $250 million,” said Puishys in the company’s announcement. “We expect this acquisition to generate cash and be accretive to Apogee’s EBITDA and earnings per share, excluding transaction costs, this fiscal year. We expect to generate $10 million to $15 million in annual synergies and operational efficiencies by fiscal 2020.”

It’s going to be interesting watching the strategy play out.

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