The Ultimate Roll-Up?

I was recently asked about the attractiveness of having a single company provide all elements of the building envelope, including roofing, foundation, exterior walls, cladding, windows, curtainwalls, entrances, storefronts, insulation, vapor barriers, and the rest. The question came from a business strategy firm, suggesting that some group of investors is seriously contemplating such a move.

At least one company is already well on its way to being able to offer complete building envelopes. Oldcastle is one of the company's that is well on its way toward offering a complete package, with strong positions in masonry, concrete, glass and glazing systems, curtainwalls, doors and skylights. Add a roofing manufacturing line, and they have it.*

The past few decades has seen strong trends towards "roll-ups" -- bringing many small producers under one corporate ownership -- in attempts to gain economy of scale and improve competitiveness by dominating an industry and combining related products into package.

Roll-ups are well established in some sectors. In lighting fixtures, for example, Hubbell has acquired over 20 previously independent brands, and electronic giant Philips recently acquired the sixteen brands that had been rolled-up by Genlyte. Assa Abbloy and just a few other firms now dominate door hardware.

While roll-ups do have important competitive advantages, many suffer from the following syndromes:
  • They lose the edge in innovation to smaller, more flexible and entreprenurial business.
  • Promotion of individual brands suffer from having to follow a corporate model. For example, some of my clients have to use corporate websites that focus on selling to investors instead of to designers and builders.
  • Managers, striving to improve the profits of their division, become jealous of and competitive with each business units, to the detriment of the overall company.
  • Product offerings become so diverse, that individuals within the firm are unable to cross refer prospects or identify opportunities for other brands.
  • Size dilutes the expertise.  What salesman can be an authority on glass AND roofing AND insulation? In smaller companies, a prospect can deal directly with a principal or other senior personnel with true expertise in a field.
Indeed, I have been a consultant to many large firms and roll-ups that crumbled due to their mass, and were more competive when unrolled.

Further, roll-ups have to compete with companies that do not manufacture all parts of a system, but assemble or "package" products from multiple vendors into bid packages that also create economies of scale. Packagers also have the advantage of using the "best" product or a job without the limitations of having to use those from sister companies. They also have the flexibility to take advantage of attractive spot pricing.

In the final analysis, every general contractor is a packager, and already offers all elements of the building envelope.

* Pre-engineered metal building manufacturers do already offer a complete envelope, including walls, roofs, structure, and accessories. But that is a subject for another blog post.