Case Studies  >  Building Products Company

BUILDING PRODUCTS COMPANY CREATING SUBSTANTIAL WEALTH FOR ALL SHAREHOLDERS

Effective Financial Communications Helps Enhance Enterprise Value

Back in the early 1990s, an old-line building products company headquartered in the Northeastern part of the United States was struggling. The enterprise had evolved into a holding company that owned different types of businesses in different market segments. The Company's stock price was languishing on the New York Stock Exchange at about $7 per share. Investors, both institutional and individual, were frustrated with a low valuation and a business strategy that seemed, at best, fragmented.  A series of questionable moves had left the Company adrift.

To create lasting change, the senior management team began to assess the situation.  As strategic planning ensued, it became clear that it was necessary to launch an aggressive financial communications program that would complement overall business planning and help unleash the true value of the Company.  Nicolazzo & Associates was retained to work with senior management and implement a plan that would ultimately bear fruit for all stakeholders.

Background and Situation Analysis

As a holding company, the organization had acquired a number of companies that did not fit into structured categories.  Almost immediately after taking control, senior management assessed each business and began divesting itself of operations that were not allied to its core business.  In one year, a half dozen companies were sold. Gains from the sales, combined with new bond debt, were put to work to acquire companies that truly fit the picture.  What began to emerge was a company that had synergistic product lines in four major categories:  interior residential building products, exterior residential building products, light commercial products and commercial products.  It was also clear that the Company had to shift its business model to produce more revenue from the booming home remodeling industry. Previously, the Company had relied too heavily on new construction, which can be dramatically affected by interest rates and other economic factors.

The Plan

As Nicolazzo & Associates launched its program, the challenges were many:

• Build the reputation and residual value of the Company's name
• Begin to re-establish a rapport with Wall Street sell-side research analysts and buy-side portfolio managers who were generally familiar with the Company, but had previously dropped coverage
• Cultivate new sell-side and buy-side investors
• Work with agencies, such as Moody's and Standard & Poor's, to upgrade the Company's ratings
• Establish consistent messaging across all financial communications platforms

The key was to gain control of the financial communications process.  As the Company began to make large and meaningful acquisitions, N&A helped the organization "get out on the road" and tell its story.  A series of "one-on-one" meetings were arranged between the CEO and key Wall Street research analysts and portfolio managers.  N&A began enterprising opportunities for the CEO to tell the Company story at national investment conferences that catered to analysts and portfolio managers in this specific industry.  The content, context and quality of earnings news releases were upgraded.  Quarterly conference calls to Wall Street were initiated.  The CEO's remarks were expanded to encompass an industry view, not just the numbers.  Information for investors, such as the annual report, quarterly brochures, 10-Qs and 10Ks were significantly upgraded.  And finally, the Company's Website began to offer investors detailed information.

The Results

Hard work and persistence paid off.  The Company's story of "focus and growth" was featured in local, regional and national business publications.  Several sell-side analysts initiated coverage.  New buy-side investors began taking positions in the stock.  The CEO and other senior managers were frequently invited to speak at national investor conferences (instead of having to ask).  Senior management was being praised for revitalizing the Company with a new vision and sense of purpose. As word spread, new acquisition opportunities were brought to the attention of senior management.  Revenues and profits grew.

Shortly after our work began, the Company's stock price began to chart upward.  After a period of approximately 18 months, the stock had doubled.  Subsequently, the stock tripled and quadrupled.  In more recent times, the stock has maintained a valuation that is more than four times the price when N&A began its efforts. Refocusing the business and investing in a substantive financial communications program created millions of dollars in wealth for old and new investors alike.

On January 9, 2003, a private equity firm acquired the Company for $46 per share in cash.  Over the senior management's tenure, the redemption price represented an annual compound rate of return in excess of 30 percent and an absolute return exceeding 2,500 percent.