M&A Offers Growth Potential While Uncertainty Rules the Day in Building Products Sector 

While a broad confluence of headwinds continues to work in tandem to roil investor sentiment and induce earnings volatility across the building products sector, strategic M&A is both a defensive necessity and opportunistic play for companies within the industry to accumulate market share while uncertainty persists, according to restructuring and investment banking professionals interviewed by Octus.
 

To take a step back and put the sector’s performance in a broader context, ongoing end-market malaise and housing affordability pressuring overall home sales as well as tariff-related price inflation, most notably, have been undercutting top-line performance within a number of publicly traded and privately held companies within the sector.

“We have an affordability issue on the residential side right now, so you’re seeing pressure on new housing starts continuing,” said Frank Sellman, managing director at Moelis. “On the repair and remodel side, it’s the first time in many, many years that we’ve seen bellwethers such as Home Depot and Lowe’s have negative comps because of consumers spending less on their homes.”

“The reason for that is multifold: During the height of the Covid pandemic when we had close to zero cost of capital for banks and a potential buyer could get a 2% to 4% mortgage, most people refinanced or bought a home using those mortgages,” Sellman said.

Now, with volumes on existing home sales skirting 40-year lows, the resulting slowdown within the residential sector has weighed on repair and remodel activity as indicated by the National Association of Homebuilders’ Remodeling Market Index. At the same time, the younger demographic of potential homeowners is, in some measure, priced out of home ownership. For example, the National Association of Realtors recently disclosed that the median age of first-time home buyers was 40 years old, an all-time high.

As a result, companies that were purchased during the Covid-19 boom at high values with a lot of leverage have limited earnings growth and face difficulties growing into their capital structures.

“A lot of the companies that were purchased in 2021, 2022, at five to six times leverage now have lower earnings, higher leverage and, in some cases, stress on liquidity. It’s a function of putting a lot of debt on the businesses at their peak,” Sellman said. “It’s really the sponsor-backed buyouts that are the ones we’re looking at where there’s a lot of leverage.”

“The industry is typically capital intensive with relatively high fixed costs and significant working capital and inventories required to meet seasonal demand,” added Jeff Hughes, managing director at FTI Consulting. “Many players opted to lever up when rates were low, and as rates have risen, leverage metrics appear worse.”

For example, U.S. LBM, described as the largest privately held building products distributor in the United States, disclosed that pro forma leverage ratio increased to 8.2x from 5.1x year over year during the third quarter of 2025, while adjusted EBITDA fell 23% in the same comparison, continuing a downward trend from prior quarters. Additionally, CD&R-backed Cornerstone Building Brands ended the third quarter with a net leverage of 9.4x, which worsened sequentially from 9x.

On the public side, the CEO of exterior building products distributor Jeld-Wen, Bill Christensen, characterized the third quarter as a “challenging environment which tested the organization in many ways,” largely attributable to low consumer confidence and housing affordability as well as customer pushback on tariff-related pricing increases and price inflation in materials, labor and freight costs.

The unsecured bond prices of U.S. LBM, Cornerstone Building Brands and Jeld-Wen are shown below:
 

However, while the Federal Reserve incrementally lowering borrowing rates should, in theory, release some of the mounting pressure, this bit of relief is being offset by the aforementioned inflationary pressures.

“Generally, companies just need time for the macro environment to come back around, and they’ll probably likely be okay,” said Barak Klein, managing director and co-head of Moelis’ U.S. capital structure advisory practice. “I suspect a lot of sponsors are going to think about it in that context.”

“The reality is that the macro trends are impacting just about everybody, so if you’re a company with a highly levered balance sheet, you could have a perfectly fine management team and still be struggling,” Sellman added. “The perspective is that 2026 is not going to be much better than 2025.”
 

While sector activity remains in the doldrums and struggling companies evaluate options for right-sizing operations as well as their capital structures, experts interviewed by Octus underscored the viability of strategic M&A as both a defensive necessity due to limited organic growth potential and an avenue by which they can consolidate market share while waiting for a turnaround in the macro environment.

“Given the challenges across the industry, M&A is increasingly a defensive must-have rather than a discretionary nice-to-have,” FTI’s Hughes said. “Many businesses, especially those acquired at peak valuations, don’t have the earnings trajectory to deleverage organically in today’s environment.”

Tim Webb, managing director at Harris Williams who serves as head of the firm’s industrials group, said the building products sector continues to offer attractive longer-term fundamentals and a highly fragmented market primed for consolidation. While some building products companies navigate various challenges in the recent macro environment, Webb continued, many continue to offer highly sought-after traits to potential acquirers.

“Both private equity firms and strategic buyers continue to value the long-term value-creation opportunities in building products, with strategics in particular leaning into M&A even through the recent market environment,” added Ty Denoncourt, managing director within Harris Williams’ industrials group. “They’re prioritizing building products companies who are still finding ways to prevail amid the current backdrop, and are seeking opportunities to expand into new geographies, add value-added capabilities, or enter adjacent product verticals.”

For example, in July, Clearlake Capital Group-backed PrimeSource Building Products acquired Fortress Railing Products, representing the company’s ninth acquisition since partnering with sponsor Clearlake in December 2020. Privately held U.S. LBM, for its part, acquired Goodrich Brothers and Walker Lumber & Supply this past February.

From the public side, TopBuild acquired Specialty Products and Insulation for $1 billion in October. TopBuild disclosed that approximately 87% of SPI’s revenue is sourced from commercial and industrial end markets, which indicates appetite for end markets outside of single-family residential that is currently struggling due to lower volumes and price-mix.

Businesses serving currently well-performing end markets such as data center and infrastructure have been capturing investor attention, Denoncourt said, while other key sectors such as the residential R&R market, meanwhile, have significant pent-up demand that continues to build, signaling upside ahead as the market normalizes.

“It’s not a great growth environment for the near term or medium term,” Moelis’ Sellman added. “You’re going to find the winners are going to be those that are doing M&A to consolidate, and you find in tougher times that the better businesses take share this way.”