Ply Gem Industries Inc.

777 Third Avenue
New York, New York 10017
U.S.A.
(212) 832–1550
Fax: (212) 888–0472

Public Company
Incorporated: 1943
Employees: 4,000
Sales: $796 million
Stock Exchanges: New York
SICs: 2431 Millwork; 2435 Hardwood Veneer & Plywood; 2436 Softwood Veneer & Plywood; 3564 Blowers & Fans

Ply Gem Industries Inc. is a leading national manufacturer and distributor of specialty products for the home improvement industry. Its products, which include wood and vinyl windows and doors, vinyl siding and accessories, vacuum cleaner bags, and numerous specialty products, are sold primarily in home stores. Ply Gem is actually an amalgam of several independent, incentive–driven operating companies that produce complimentary goods and services. The company has grown dramatically since 1982, allowing it to report net income, before nonrecurring charge, of $17.2 million on sales of $796 million by 1994.

Ply Gem was founded in 1944, during World War II, by 27–year–old Bernard Hewitt. Hewitt started the company in New York by purchasing plywood crates for twenty–five cents and then reselling the wood for a profit. Hard work and determination allowed him to save enough money to get into the plywood manufacturing business. Postwar economic growth during the 1950s and 1960s generated a massive demand for plywood and other building products. As sales of plywood products increased, Hewitt diversified his business into paneling and other wall covering products.

In 1969, Hewitt purchased Studley Products Inc., a major manufacturer of vacuum cleaner bags. During the 1970s the company continued to expand its operations by serving mostly regional markets in the northeastern United States and Canada. Demand for wood paneling products leveled during the late 1970s as housing starts declined and new building materials continued to supplant wood paneling. In fact, the total number of U.S. companies still manufacturing significant amounts of paneling had dropped since the 1960s to about 40 by the late 1970s. That number would continue to fall to only seven by the mid–1980s. Nevertheless, Ply Gem had grown its revenue base to about $55 million annually by 1980 and it boasted a healthy balance sheet.

In the early 1980s, Ply Gem caught the eye of savvy Wall Street investment specialist Jeffrey Silverman. Silverman believed that the solid, sleepy little paneling and vacuum cleaner bag manufacturer was undervalued and possessed vast potential for growth. In 1982 he purchased a controlling share in Ply Gem and in 1983 was named president of the company. Hewitt stayed on as chairman of the board and chief executive but gradually transferred his duties and title to Silverman. Silver–man’s arrival signaled the commencement of fervid growth and expansion that would hike Ply Gem’s sales more than ten–fold by the end of the decade.

Silverman may have seemed like an odd match for Ply Gem. With a background in finance, the 35–year–old Silverman had no experience in building supply or manufacturing industries; he once told Fortune, “I don’t invest in anything that a mad scientist has to explain to me.” What Silverman had, however, was a knack for spotting potentially successful businesses—and investing in them. His interest in investments dated back to high school when he started an investment club. By age 21 he had collared the distinction of being the youngest member ever on the New York Stock Exchange.

While Silverman studied the ins and outs of the paneling and vacuum cleaner bag business under CEO Hewitt, he also launched his growth strategy for Ply Gem. Silverman recognized that Ply Gem had a solid product line and good regional distribution channels. However, he believed that the company was failing to capitalize on opportunities. His plan was to use Ply Gem’s access to capital to purchase manufacturers with complementary products and/or distribution channels. He would select companies that would benefit from Ply Gem’s competencies and also help Ply Gem expand its core products. The end result, he anticipated, would be an overall positive synergy, with the financial rewards of the whole organization becoming greater than the sum of the individual parts.

Silverman initiated his buying binge in 1983 with the purchase of Goldenberg Group, Inc. and Hoover Treated Wood Products, Inc. Goldenberg was a West Coast manufacturer and distributor of furniture components, laminates, and board products. Its primary customers were furniture manufacturers, building material retailers, and wholesalers. Hoover produced treated wood products, including fire retardant and insect– and moisture–resistant lumber. It sold to home center chains, lumberyards, and building material retailers and wholesalers. Both acquisitions gave Ply Gem a stronger national presence and broadened its product line.

In addition to his expansion strategy, Silverman also worked to shore up Ply Gem’s original product lines, particularly vacuum cleaner bags and plywood paneling. In 1983, for example, Ply Gem conducted a study of women who redecorate their homes. The results showed that women generally view wood paneling as masculine and useful only for dens and basements. So, Ply Gem began manufacturing paneling that did not have a wood grain appearance. The product, which combined the benefits of wallpaper and paneling, was well received by the market and actually cost less to produce than conventional paneling. “We take inexpensive wood and give it the look of a fine precious wood,” Ply Gem president Howard Steinberg told the Philadelphia Business Journal. Within three years the new product represented more than 50 percent of Ply Gem’s paneling sales.

As a result of product innovations and new acquisitions, Ply Gem’s revenues rocketed from the $55 million mark in the early 1980s to $160 million by 1984, and net income grew to $4.5 million. Although the company’s debt load also swelled, a surge in Ply Gem’s stock price reflected the enthusiasm of analysts. Silverman added another company to his fold in 1985 with the buyout of Allied Plywood Corporation. Allied was a national distributor of various specialty wood and wood–related products, including hardwood plywood and lumber, laminated board products, solid surface materials, and cabinet hardware. It was also a major importer of Russian wood products. Its customer base consisted of industrial wood processors such as mills and store furniture manufacturers.

Silverman engineered the acquisition of two more companies in 1986; Variform, Inc. and Great Lakes Window, Inc. Variform allowed Ply Gem to assume a leading role in the U.S. vinyl siding industry. Its products were sold to major home centers and lumber yards as well as to wholesale distributors. Great Lakes Window was a manufacturer of high–quality, energy–efficient, maintenance–free replacement windows and glass doors. It sold its products through a highly–trained sales force to window distributors, and was recognized as an industry innovator. Both acquisitions broadened Ply Gem’s product offerings and offered new potential distribution channels for its other goods.

Ply Gem’s sales surged to $286 million in 1986, $312 million in 1987, and then $384 million in 1988, when net income reached $16 million. As a result of investor zeal, the company’s stock price shot up from just $2 before Silverman took the reins to around $13 by 1989. Subsequently, the value of Silverman’s controlling stock had ballooned to $23 million. The gains were partially attributable to the 1989 purchase of Sagebrush Sales, Inc. and Continental Wood Preservers, Inc. The former was a manufacturer and distributor of specialty lumber and building products serving the home improvement and building materials markets in the Southwest. Continental was a midwest manufacturer of pressure–treated wood products.

Silverman did relatively little to combine his acquisitions into a cohesive unit during the 1980s. Instead, he managed the company by allowing each separate subsidiary to operate largely autonomously. In fact, he encouraged management to stay on board and continue to operate their business. He enticed them to stay and to do a good job managing the companies by offering financial incentives, including stock options, based on performance. “We try to encourage all our people to be as innovative and entrepreneurial as possible, then reward them for their good ideas,” Silverman explained in Equities. The end result of the strategy during the 1980s was strong revenue growth, though comparatively weaker income gains.

Spurred by the success of its buyout strategy, Silverman executed Ply Gem’s largest acquisition ever with the 1989 purchase of SNE Enterprises, Inc. SNE was a Wausau, Wisconsin–based manufacturer of windows, doors, skylights, and related products. The company started in 1978 and had grown quickly to comprise more than 1,000 workers. It was an industry leader in production and distribution efficiency, as evidenced by its steady growth during the housing downturn of the late 1980s. Mostly as a result of that acquisition, Ply Gem’s sales rose to $545 million during 1990, thus boosting the holding company’s growth rate during most of the 1980s to 25 percent annually.

Despite continued revenued growth, however, net income plummeted to $3.2 million in 1992 and then edged upward to about $9.7 million by 1993. Silverman had temporarily backed away from his expansion plans in 1990, concentrating instead on improving his existing operations and cutting Ply Gem’s debt load. Toward that end, he launched TEAMWORK 90’s, a strategic growth plan focusing on internal development designed to increase Ply Gem sales to the national home center chains.

By 1990 Ply Gem had accrued long–term debt of more than $100 million in its effort to buy new companies. It slashed that burden to just $58 million one year later. That move made it easier to finance the purchase of Richwood Building Products, Inc. in 1992. Richwood was a producer of siding accessories that sold to both remodeling and new construction markets. That purchase rounded out Ply Gem’s offerings related to siding and outdoor home fixtures. It was a neat fit because it was the only major manufacturer of vinyl siding in North America that matched colors offered by almost all other siding/accessory companies.

In addition to shoring up Ply Gem’s balance sheet in the early 1990s, Silverman engineered a plan to consolidate and streamline the Ply Gem organization to take advantage of its subsidiary’s complementary competencies. To accomplish this feat he brought in Monte R. Haymon late in 1993 to serve as president of the company. Haymon had most recently served as president of Packaging Corp. of America. There, he increased earnings seven–fold and built it from a small paperboard company into a $2 billion international packaging corporation. The 59–year–old Haymon was a chemical engineer, a Harvard M.B.A., and a native New Yorker. Although he had no experience in the home or building supplies industries, he was undaunted by the task: “I’m a quick study,” he said in Crain’s New York Business.” I was brought in to add value... I wasn’t brought in for my technical expertise in doors.”

Haymon had his work cut out for him at Ply Gem. By 1994 the company had become a major supplier to the building supply retail market, which included warehouse stores like Home Depot and Builders’ Square. The warehouse store market, in fact, accounted for about two–thirds of Ply Gem’s sales. The company had also retained its presence in the more volatile professional builders’ markets. However, Ply Gem had failed to take advantage of huge opportunities to cut costs and unify its operations. During Haymon’s first year he initiated a $41 million restructuring program designed to streamline manufacturing, cut redundancies at the 11 operating divisions, and add $12 million to the company’s net income over a period of only 12 months.

Even before the October 1994 announcement of the major restructuring, Haymon’s presence was being felt at the company. He had already started eliminating managers who did not subscribe to his new corporate creed of efficiency and conformity to standards. In addition, he had slated a consolidation of Ply Gem’s 4,000–member work force and its 50 offices spread across the United States and Canada. The response by Wall Street to Haymon’s efforts was dramatic. Despite a rise in interest rates (which suggested a rocky short–term future for the housing industry), Ply Gem’s stock price rose to nearly $23 by the end of 1994, nearly double that of the prior year.

As it entered the mid–1990s, Ply Gem was striving to position itself as a leading manufacturer and distributor of high–margin, home–related products for sale to home improvement superstores. Ply Gem’s revenues soared to a record $722 million in 1993, making it one of the top 500 companies in the United States (based on sales). Furthermore, because of the anticipated boom in home improvement and renovation spending through at least the year 2000, long–term expectations for growth were positive. As Haymon worked to strengthen Ply Gem’s internal operations, Silverman continued to pursue new acquisitions and focus on increasing sales to the national home center giants. In April 1995, Haymon resigned his positions as president and chief operating officer, opting to continue serving in the capacity of consultant, particularly on matters involving the restructuring initiatives implemented the year before. Involved in a search for a new company president, Silverman affirmed in a company press release that management had “assembled a team of capable managers to lead Ply Gem in its next stage of growth and development,” and noted that “new executives appointed in 1994 at both the corporate and subsidiary levels will continue to implement ‘best practices’ in manufacturing, quality and procurement across the Ply Gem companies and to generate strong revenue and profit improvements.”

Principal Subsidiaries

Allied Plywood Corporation; Continental Wood Preservers, Inc.; Goldenberg Group, Inc.; Great Lakes Window, Inc.; Hoover Treated Wood Products, Inc.; Ply Gem Manufacturing; Richwood Building Products, Inc.; Sagebrush Sales, Inc.; Studley Products, Inc.; SNE Enterprises, Inc.; Variform, Inc.