Fundamentals are still favorable for flooring growth: Strategic Exchange - Apr 2017

By Kemp Harr

Despite the ongoing quibbling between and among parties in Washington, D.C., we continue to see statistical improvements in other key areas that have a more direct effect on flooring sales.

We got good news from the latest Architecture Billing Index, which popped back up above 50 to 50.7 in February after dipping to 49.5 in January. And while existing home sales retreated 3.7% in February versus January, the annual pace of 5.48 million homes is still 5.4% above a year ago. We’re seeing a similar situation with new homes. Housing starts in February dipped 6.2% compared to January but are still up by 4.4% versus a year ago. Home values continue to rise, unemployment inched down to 4.7% in February, and construction employment is up by more than 175,000 in the last six months.

On another note, we were concerned to hear that the floorcovering order rates from the major suppliers took a serious dip in February, but were pleased about reports that March was much better. Some of this can be attributed to pipeline adjustments due to when price increases kicked in.

BENTLEY MILLS’ ACQUISITION BY BALTA
Bentley Mills is back in the news again. At the first of the year, we announced that Lone Star Capital had purchased Bentley from Dominus Capital, and then just a few weeks ago, we reported that Bentley was going to be purchased by Balta, the largest producer of carpet in Europe. Naturally, this caught our attention, but the March 8 issue of L’Echo, a Belgian business newspaper, helped us understand the full picture.

Balta was started by Paul Balcaen back in 1964 as an area rug producer. Paul’s family at the time was a producer of women’s clothing, and he wanted to branch out into soft floorcovering. The Balta name, in fact, is derived from the first three letters of his last name and the first two letters for the Dutch word for carpet-tapijt. Paul guided the company from first focusing on cottage labor (home weavers) to eventually building multiple factories, where an initial focus on machine weaving led to tufting and extrusion. Balta was the first company in Europe to produce area rugs with polypropylene bulk continuous filament-making them more affordable for the masses.

It is rumored that Roger De Clerck (founder of Beaulieu) started his textile career focused on furniture fabrics but followed Paul into the carpet sector.

Paul passed the baton for running the company to his son Filip Balcaen in 1990. Filip had joined the firm in 1984 after getting an American business school education. Filip, you may recall, recently sold IVC to Mohawk for $1.2 billion, but I’m getting ahead of myself.

Filip proved to be a charismatic leader with disciplined focus on hard work, and Balta thrived and expanded under his leadership to become a global player. In 1997, he founded International Vinyl Company (IVC), which soon became a major resilient flooring producer, and in 2002, Balta opened a distribution center in Dalton, Georgia focused on rug sales. In 2004, after achieving soft surface sales of just under 400 million euros, the family sold controlling interest of the company to Doughty Hanson, a U.K. based private equity firm. Filip wisely kept IVC out of that transaction.

In 2010, Balta bought Domo’s flooring business, which brought with it the Modulyss carpet tile business. Three years later, Balta sold the Balterio (laminate flooring) and Spanolux (MDF board) business to IVC, which took Balta out of the hard surface business. Finally, in June 2015, Doughty Hanson sold Balta to Lone Star Capital.

So, this recent move by Lone Star to combine its two flooring assets is a precursor to an initial public offering (IPO) in the Brussels Stock Exchange, according to the article in L’Echo-which reports that the IPO is expected to take place “before the summer.” We estimate Balta’s annual sales with the addition of Bentley Mills to be around $750 million, split almost evenly in three parts: rugs, commercial and residential.

The good news for Bentley is that it is no longer running on the private equity treadmill waiting for the next potential flip by its owners, and it is back to being part of a publicly traded company much like it was at Interface. Bentley’s culture here in the U.S. is a good fit with what Paul and Filip created with Balta in Europe.

FUSE ALLIANCE PUTS EMPASIS ON A&D
When the Fuse Alliance group of commercial flooring contractors met last month in Austin, Texas, much of the meeting was focused on identifying ways to become more of a resource to the A&D specifying community. Cheryl Durst, president of the IIDA (International Interior Design Association), was the keynote speaker, and four designers were invited to participate in a panel discussion designed to identify the benefit that specifiers gain by having a go-to advisor that works with flooring on a daily basis.

Many commercial contractors have evolved over the last 25 years and have learned that reaching beyond the general contractor and building relationships with both the building owner and the design community can result in an increased number of wins in the bidding process. With the help of Cheryl’s presentation and the panel, many Fuse members left the meeting with a better understanding of the role they can play as advisors in the specifying process.

Business was good in 2016 for Fuse members, who enjoyed a 12% growth in revenue. The group also added seven new members and six new vendors.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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