Nucor Expands Construction Products Business Through US$3 Billion Acquisition
The purchase is Nucor's largest downstream acquisition yet and complements its non-residential building products business while giving it a direct line into a new market: residential construction.
"Acquiring C.H.I. is another step in our long-term strategy to expand into areas that are a natural extension of our business and leverage our efficient manufacturing model," Leon Topalian, president and chief executive of Nucor, said in a statement.
C.H.I. manufactures residential and commercial overhead door products, as well as rolling steel and rubber doors for industrial customers. However, the majority of its business is in residential garage doors, a market of which C.H.I. holds a 14% slice. It also has 4% of the commercial overhead door market, Nucor executives said during a conference call with investors.
Nucor executives said those shares can only increase given that the country is short on housing and that more than 2 billion square feet of warehouse space will be demanded in the next few years.
Nucor is paying a premium for the business, 13 times its trailing 12-month EBITDA. But Topalian and other executives said the premium is well worth it because C.H.I. is unrivaled in terms of its manufacturing efficiency, return metrics and growth prospects.
"We've been watching and following C.H.I. for just over two years now. It is the best company out of the thousands that we've evaluated in its performance metrics," Topalian said. "It is going to generate incredibly strong returns and free cash flow for Nucor."
C.H.I. has two production facilities in Arthur, Ill., and Terre Haute, Ind., and regional warehouses in California, Colorado, New Hampshire and New Jersey. It was founded in 1981 and is being acquired from investment firm KKR & Co.
KKR said it hadn't been wanting for offers, but refrained from selling until the right buyer came along.
“As we considered the company’s next chapter, it was of the utmost importance to not only find a strategic partner who could further build on C.H.I.’s strong performance and growth, but also one who would continue to prioritize the backbone of the business – its workforce," said Pete Stavros, co-head of Americas Private Equity at KKR.
"We were approached many times over the years by many prospective acquirers, but Nucor was without question the right home for the business. By joining forces with Nucor, C.H.I. will continue to be part of an employee-centric organization that not only shares its growth ambitions but also provides all employees an opportunity to share in its success."
But if KKR and Nucor executives are excited about the deal, then certainly so are C.H.I. hourly employees, who stand to receive between US$20,000 and US$800,000 in payouts through an employee stock-ownership plan, The Wall Street Journal reported.
The acquisition is expected to close in June.