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Building materials company James Hardie Industries has struck a $9.1bn cash-and-stock deal to buy decking manufacturer Azek, in the latest big bet on US homeowners’ spending power as mortgage rates begin to fall.
The takeover will bring together the largest supplier of home exteriors in the US with one of the biggest outdoor living products manufacturers, creating a company with combined earnings of $1.8bn and revenues of $6bn, mostly in the US.
The deal is the latest in a series of big acquisitions by companies in the home improvements sector. Last week, building products distributor QXO finally secured an $11bn deal to buy Beacon Roofing Supply after months of talks. Last year, Home Depot bought another roofing company, SRS Distribution, in an $18bn deal.
As part of the deal, announced on Sunday, Azek shareholders will receive $26.45 a share in cash and the remainder in James Hardie stock, valuing Azek’s shares at $56.88 each, based on recent averages.
The deal values Azek’s equity at $8.7bn and its enterprise value including debt at $9.1bn, representing a 26 per cent premium to the average share price over the past 30 days. James Hardie, which is headquartered in Dublin, will also obtain a secondary listing on the New York Stock Exchange on top of its Australian listing after the deal closes.
Both companies have led the way in using synthetic materials, such as fibre and cement, for home improvements. The median age of a US home is 43 years, according to 2021 research from the Harvard Joint Center for Housing Studies.
“Together, we will be well positioned to drive sustained above-market growth as a leader across attractive categories for the exterior of the home,” said James Hardie’s chief executive Aaron Erter.
Under its two brands Azek Exteriors and TimberTech, Azek specialises in manufacturing decking, railings and pergolas.
In recent months, the US Federal Reserve has undertaken three interest rate cuts, lowering the federal funds rate to a range of 4.25-4.5 per cent. Despite a recent pause in the rate cutting cycle, the Fed expects at least two more cuts later this year, in a bullish sign for the US housing sector and therefore home improvements companies.
The combination of the two groups will boost annual earnings before interest, taxes, depreciation and amortisation by at least $350mn, on account of $125mn in cost savings and $500mn in revenue synergies. James Hardie was advised by Jefferies on the deal, while Azek was advised by Goldman Sachs.
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