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NCI Building (NCS) & Ply Gem Announce All-Stock Merger Deal

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NCI Building Systems, Inc. and Ply Gem Parent, LLC have agreed to merge in an all-stock deal. The combined company is likely to have an equity valuation of about $2.6 billion (based on NCI's closing share price on Jul 17). Shares of NCI jumped 3.86% in yesterday’s after-hour trading session, following the news.

Financial Terms

Per the deal, NCI will issue 58.7 million shares to Ply Gem shareholders. Post-closing of the transaction, which is expected in fourth-quarter 2018, shareholders of NCI will own 53% of the combined entity and that of Ply Gem will hold the rest. The transaction will likely be tax free for the Ply Gem owners owing to U.S. federal income tax purposes.

Merger Synergies

Headquartered in Cary, NC, Ply Gem sells and manufactures home exterior products for single and multi-family homes. Its key products include windows, doors, siding, roofing, metal accessories, stone and other adjacent products.

Meanwhile, in April 2018, Clayton, Dubilier & Rice (CD&R) acquired Ply Gem and merged it with Atrium Windows & Doors, a residential windows and doors maker. Overall, Ply Gem spans across 35 facilities in North America.

On the other hand, Houston, TX-based NCI is one of the major integrated manufacturers of metal products for the North American non-residential construction industry.

Post completion of the merger, the combined company is expected to be a market-leading North American exterior building products provider of solutions for new construction, and repair & remodel for commercial as well as residential applications. It will have combined strength in advanced manufacturing, product innovation and cost efficiency, coupled with shared acquisition integration and cross-selling capabilities. The new bigger entity will be headquartered in Cary, NC, with a substantial presence in Houston, TX. However, the name of the combined company is yet to be finalized.

As a vertically-integrated manufacturer with enhanced growth opportunities, the company will be able to serve clients with a broader product portfolio across multiple end markets. It is expected to generate approximately $4.5 billion of revenues on a combined basis in 2018.

Meanwhile, greater diversification of end markets and raw materials decreases earnings volatility. Ongoing cost-saving initiatives undertaken by both NCI and Ply Gem, along with identified near-term cost synergies are expected to generate more than $150 million savings annually after three years of deal completion.  The combined entity is expected to generate adjusted EBITDA within $660-$680 million on a pro-forma basis in 2018. Also, the deal will immediately add to adjusted earnings and free cash flow, as declared by the companies in a statement.

Bottom line

The companied company is expected to benefit from ongoing robust construction activity in the United States. Construction spending in the United States has increased lately, supported by a steady increase in outlays on private as well as public construction projects.

Currently, NCI sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the same space include Foundation Building Materials, Inc. (FBM - Free Report) , Aegion Corporation (AEGN - Free Report) and Armstrong World Industries, Inc. (AWI - Free Report) , each carrying a Zacks Rank #2 (Buy).

Foundation Building Materials’ current-quarter earnings are expected to increase 62.9%.

Aegion and Armstrong World Industries’ full-year earnings are likely to increase 34% and 22.9%, respectively.

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