James Hardie (JHX, Financial), an Australian supplier of fiber cement and fiber gypsum products, announced its acquisition of The AZEK Company (AZEK, Financial), a provider of decking and railing products. The cash-and-stock deal is valued at $8.75 billion and is expected to close in the second half of 2025. AZEK shareholders will receive $26.45 in cash and 1.034 shares of JHX, totaling $56.88 based on Friday's closing price, representing a 37% premium.
- The companies aim to combine complementary products, including siding, exterior trim, decking, railing, and pergolas. This merger will create a one-stop shop for contractors, as consumers often seek siding and decking simultaneously.
- James Hardie anticipates at least $500 million in commercial synergies, with cross-selling opportunities across each company's contractor network. The combined entity will offer a broader range of products and a national presence in North America, potentially exceeding synergy forecasts and enhancing valuation.
- Despite recent slow growth, James Hardie notes AZEK's over 15% annual sales growth in its residential segment over the past seven years. This acquisition is expected to boost James Hardie's sales and adjusted EBITDA growth by more than 250 and 300 basis points, respectively.
- Once cost synergies are realized, the combined company expects to generate over $1 billion in annual free cash flow. James Hardie plans to use this to support organic growth, reduce debt, and fund share repurchases, including a $500 million buyback within 12 months post-closing. The company aims for a leverage ratio below 2.0x net debt to LTM adjusted EBITDA by the end of the second full fiscal year after closing.
This acquisition appears to be a strategic fit, despite initial perceptions of limited overlap in product categories. The premium offered is attractive for AZEK shareholders, but James Hardie's stock is down, likely due to investor concerns over the premium paid. Meanwhile, AZEK competitor Trex (TREX, Financial) is seeing a positive reaction in its stock price.
