Kenner Remodels Portfolio –

Kenner & Co. has exited its investment in door maker Therma-Tru in a $925 million sale to Fortune Brands, clearing the space for its $610 million purchase of the former Ardshiel/GE Asset Management vinyl windows platform, Atrium Corp.

“The housing market has been very strong and is expected to continue to be strong due to industry demographics, attractive interest rates and consolidation in the home construction field,” said Kenner Founder Jeffrey Kenner.

New York-based Kenner concentrates solely on the building products industry and counts BSI Holdings, Pace Industries and Behr Process Corp. among its current and past investments. The firm got its foundation with the rise of WalMart in the eighties, having invested in a small paint company. “We started with an investment in United Coatings in 1983, and they had a small customer at the time called WalMart,” Kenner said. From that investment the firm was able to construct its image around the building products space.

Kenner originally invested in Therma-Tru in 2000, gaining a 50% stake in the business through a recapitalization, the terms of which are undisclosed. The Welles family, which founded Therma-Tru in 1962, held onto a 44% stake at the time, while management controlled the balance.

Kenner contributed about $75 million to help expand the manufacturing capacity, and spearheaded an OEM growth strategy to expand its distribution network. Kenner would not give any financial data on the business other than to say it has been growing at double digit rates. Fortune Brands, which paid a two times revenue multiple for Therma-Tru, expects the business to add $0.15 to its earnings per share in the first year of ownership.

Atrium Purchase

Meanwhile, as Kenner was negotiating the sale of Therma-Tru, the firm was also working on bringing Atrium Corp. into its portfolio to replace the door maker. For the acquisition, Kenner, along with minority investor UBS Capital Americas, paid $620 million for the business, which will be financed with senior debt provided by CIBC World Markets and UBS. Kenner purchased the window maker from GE Investment Private Placement Partners and Ardshiel Inc., a partner with GE Asset Management.

Kenner bought Atrium for its national presence and significant growth potential. To grow the company, the firm will look to expand its distribution reach among the homebuilders and retailers.

For the sellers, this deal wraps a successful investment for Ardshiel and GE, having started the platform in 1996 with the acquisition of interior door maker Wing Industries. However, it wasn’t until the investor group added Atrium on to the business that the investment started to take shape. In 1998, Ardshiel and GE purchased Atrium out of Hicks, Muse, Tate & Furst’s portfolio for about $225 million, and including Wing and other assets, the merged company had an enterprise value of around $325 million. It was not long after that Wing assumed the Atrium name and eventually phased itself out altogether with the sale of the interior doors business, putting the focuse exclusively on windows.

The investment experienced significant growth since 1996, with revenue climbing from $225 million to more than $600 million. In 2000, Ardshiel and GE took some money off the table through a recapitalization, cutting their ownership stake down to 70% from 90 percent. Roger Knight, a managing director with Ardshiel, said, “There were opportunities out there for [Atrium] to become a billion-dollar plus business, but we were at a crossroads with the investment: Do we continue to invest in it so we can take advantage of the intrinsic resources we built up-which would require significant new investments-or do we take a nice realization?” At that time, Knight said, Kenner came calling.

Knight would not comment on the IRR of the investment, other than to say the firm and the investors are very pleased with the returns.

Snap Shot

Kenner Lawyer: Mayer, Brown & Platt

Therma-Tru Accountant: PricewaterhouseCoopers

Ardshiel Lawyer: Paul, Hastings, Janofsky & Walker