At the Kitchen & Bath Industry Show (“KBIS”) in Las Vegas last week, we met with stone manufacturers, distributors, and fabricators, including Caesarstone, Cambria, Wilsonart, and Architectural Surfaces Group, and private equity firms that have invested in the sector and continue to eye opportunities. Topics discussed last month at The International Surface Event (“TISE”) in Las Vegas, including tariffs, immigration, and resilience in the high-end of the market, also resonated with stone companies. Below are highlights of select topics that were front of mind at KBIS, including drivers of market recovery, silicosis, and opportunity for value creation through mergers and acquisitions (“M&A”).
Drivers of Market Recovery. The recent slowdown appears to have impacted stone companies more than tile and flooring companies that attended TISE. A company remarked that new product introductions at KBIS seemed much higher than in prior years, perhaps a sign that companies are trying to drive growth in an otherwise flat market. Companies are hoping for improvements in the second half of this year. Not surprisingly, companies believe lower interest rates are critical to broad-based recovery. Companies also agreed with the finding presented in a recent Zonda research report that pent-up demand, together with homeowners tapping into historically high home equity, will amplify recovery in the residential repair and remodel market as rates decline. When asked about demand pull-forward during COVID that could moderate recovery, companies agreed with Zonda that while revenue increased during COVID, that increase was primarily driven by higher prices resulting from supply chain disruptions. Volume growth was more muted, and demand pull-forward was not as strong as reported in the media and anecdotes. Therefore, companies believe that significant pent-up demand will drive sustained recovery in 2026 and beyond.
Silicosis. Silicosis has been a known risk in stone cutting for hundreds of years. More recently, plaintiffs named Caesarstone as a defendant in silicosis cases in 2008. Prior to taking Caesarstone public in 2012, underwriters and their counsel conducted due diligence on silicosis and potential liability. They concluded that warning labels Caesarstone affixed to each slab provided protection and that responsibility, and therefore potential liability, rested with fabricators. In the last couple of years, silicosis has become front of mind again for the stone industry, owing to the proliferation of lawsuits in the U.S., with companies across the entire value chain named as defendants, and Australia’s ban on quartz countertops. We spoke with a manufacturer that has been named in approximately 65 lawsuits. The manufacturer estimated that exposure was a million dollars per case and was contemplating filing for bankruptcy protection. In a separate meeting, a distributor asked about how acquirors are looking at lawsuits in the context of M&A. No one could predict how all the silicosis lawsuits would play out, but they are, undoubtedly, an unwelcome distraction.
Mergers & Acquisitions. Against this backdrop, larger, better capitalized companies contemplating exits indicated that they are waiting for Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) to “get back to a higher level.” They also speculated that their smaller competitors may not have the same luxury and could become acquisition targets if current conditions persist. Without certainty around the timing of recovery, companies were eager to talk about value creation opportunities. We brainstormed strategies with companies to maximize shareholder value, including acquiring smaller companies and merging with peers. These strategies drive synergies, scale, and geographic and product diversity that will result not only in higher EBITDA but also valuation multiple at exit. Value creation strategies are not available just to larger companies. Smaller companies can also merge or “roll” their equity when selling, enabling participation in future equity upside.
As a trusted advisor to owners and executives in the Tile & Stone space, we leverage our unmatched industry knowledge and M&A expertise to achieve best-in-class outcomes for founders and owners. We welcome a confidential conversation to discuss your options and strategy in this rapidly evolving market.
Coverings – Orlando: We would love to see you at Coverings in Orlando on April 29-30, 2025. If you are interested in an on or off-site meeting, please reach out to me at [email protected] or call at 551.795.5725.