The slumping residential construction market
is helping spur consolidation among downstream metal
operations. For private equity firm Genstar Capital LLC, that
spells one thing opportunity.
In April, the San Francisco-based company
paid $228 million for International Aluminum Corp., a producer
of residential and commercial building materials. The timing of
the acquisition, which came in the midst of a 20-percent
downturn in the residential building market in the first half
of the year, was no accident, according to Genstar managing
director Darren J. Gold.
"It was a good time in the cycle to buy," he
said. "We believe in buying toward or at the bottom of a cycle
and taking a long view with our portfolio companies. We're
patient capital. We have the luxury of taking our time and
working with our companies." Given that Genstar has held on to
some of its acquisitions for as long as 12 years-although it
sold others as soon as two years after buying them-it might
well be in for the long haul.
Genstar saw International Aluminum as an
undermanaged business in a sector with growth potential, Gold
said. "We have a strong belief in the residential market, and
companies going through tough times have tremendous potential.
Our view of the residential sector is that we have hit bottom
or near bottom, but the real question is, how long until it
turns back up?"
Gold notes that 70 percent of International
Aluminum's business is in the commercial building and
construction market, which has flourished despite the
residential downturn. "Building and construction is certainly
not off on the commercial side, which has shown tremendous
growth," he said.
Since taking control of Monterey,
Calif.-based International Aluminum via a friendly buyout in
April, Genstar has installed a new president and head of its
extrusion business, as well as improving inventory management,
customer service and manufacturing practices.
International Aluminum had revenue of $280.8
million in the fiscal year ended June 2006. The company, which
employs about 1,600 people at 15 manufacturing facilities in
North America, operates three main business lines. Its
commercial division makes decorative entrance doors and store
fronts; the residential division makes aluminum and vinyl
windows and doors used mainly in remodeling and replacement
applications; and the extrusion operations manufacture mill
finish, anodized and painted aluminum products for both
internal and external applications. The company is at least
partially vertically integrated in that the extrusion division
supplies the residential and commercial divisions.
Gold characterized the purchase of
International Aluminum as a building products, rather than a
commodity markets, play. The private equity company is already
considering more acquisitions to expand its footprint in the
building products sector, he said. "We are currently looking at
a couple of complementary acquisitions for International."
While a focus on downstream aluminum assets
could reduce exposure to commodity price risk, that does not
mean Genstar is not interested in the wider metals business.
But that interest might not be limited to the aluminum sector.
"We've spent a little time looking at copper fabricators," Gold
As a former owner of Wolverine Tube Inc., a
copper fabricator currently going through a restructuring,
Genstar has prior expertise it can call on. "Wolverine was a
very successful investment for us," Gold said. "We learned
quite a bit about the copper industry."
Genstar divested its Wolverine stake in the
mid-1990s and did not take any other interests in metals until
the International Aluminum purchase, instead focusing primarily
on such sectors as life sciences and health care services,
industrial services, and business services and software.
But as upstream metal producers consolidate
and shed more and more downstream operations, Genstar, which
has $3 billion in committed capital under management, could be
waiting to pounce. "With the consolidation among the majors and
the potential for divestitures, we could be a buyer of choice,"
In a further indication of its interest in
the metals business, the private equity player recently
appointed George Haymaker, former chairman and chief executive
officer of Kaiser Aluminum Corp., to its strategic advisory
board. "He brings a whole host of experience in the aluminum
business," Gold said. "International was a building products
play, but we have a broader interest in metals, especially
As the metals sector and downstream
activities in particular continue to consolidate, Gold said
Genstar believes there will be additional opportunities ahead.
"There are still areas which are not consolidated or in which
strategic buyers are not as logical. We normally buy companies
within pretty fragmented industries so the companies can go out
and make acquisitions themselves." This model could apply to
International Aluminum, he added.
Genstar's latest fund is a $1.6-billion
warchest targeted at, but not limited to, acquisitions in the
$200-million to $400-million range. It plans to deploy the new
capital over the next two to five years, noting that
acquisitions can be opportunity driven. "Sometimes
opportunities are more plentiful than others," Gold said. Any
acquisitions are likely to have a North American focus, he
Flush with capital and the expertise of a
former aluminum company chief, Genstar looks well positioned to
take advantage of the restructuring in the aluminum industry if
it so chooses.
"Private equity capital will continue to flow
into every industry. Building products and metals are no
exception," Gold said. "That makes it more necessary to have a
unique perspective. Folks like Haymaker give us that
perspective. We're always in the mode of adding great people to