Last week, Anchor Peabody met with more than 20 manufacturers, distributors, and installers at The International Surface Event (“TISE”) in Las Vegas. We met tile, stone, and flooring manufacturers, distributors, and installers that included AHF / Crossville, Artivo Surfaces, Interior Logic Group, Mannington, and Mohawk as well as private equity firms active in the building industry.
Similar to what we heard at TISE in 2024, the overall tone was cautiously optimistic with companies anticipating improvement in the second half of 2025, followed by sustained recovery in 2026 and 2027, driven by, among other factors, lower interest rates, a more constructive business environment, and pent-up demand. Recurring topics raised included tariffs, immigration, and end-markets. Below are the highlights of our meetings.
Policy Impact
- Tariffs. Potential tariffs on imports were at the forefront of everyone’s mind. The uncertainty surrounding tariffs was just as disconcerting as the potential inflationary pressure and impact on demand. This overhang has made it more challenging for companies to plan many facets of their business, including sourcing and pricing. Some companies, however, shared a counterview, arguing that the impact of tariffs may be more muted. President Trump is pro-growth and sees the stock market as a “report card” for his performance. His administration will back down if policies are not well received by the market. Furthermore, manufacturers may absorb a portion of the cost increases, and lower freight costs may help offset higher costs.
- Interest Rates. Despite three cuts since last fall, rates remain high. Companies expect housing starts to remain flat in 2025, and with homeowners still hanging on to low rates from a few years ago, existing home sales, a key driver of repair and remodel activities, are likely to remain sluggish. While home equity remains high, monthly payments remain prohibitively high, putting a damper on repair and remodel projects.
- Labor. Some companies voiced concerns that deportations could lead to labor shortages which would not only be inflationary but also crimp any demand recovery. Others countered that the concern was overblown, arguing that deportations have taken place under all previous administrations without a noticeable impact on the economy.
End-Market Outlook
- Residential. Most companies expect to grow at the rate of GDP. New construction is expected to be better than repair and remodel, although some companies selling to the repair and remodel market reported “green shoots” in the first few weeks of January. They saw customers place larger orders and purchase higher-end products and attribute this to wealthier consumers being tired of deferring purchases and wealth effect created by the rising stock market. Lastly, some larger companies reported that they are well-positioned to drive above-GDP growth by taking share from smaller competitors.
- Multifamily. Another challenging year is expected. Developers are not expecting to break ground on new units. High vacancy rates in some markets will cause property managers to postpone repair and remodel spending.
- Non-residential. This end-market was a bright spot last year, and companies expect another outperformance in 2025. Some companies reported that many projects deferred due to COVID still need to be completed and cited hospitality, healthcare, and education as pockets of strength.
M&A Market
Private equity firms are eager to transact. For the last couple of years, they have been sitting on the sidelines and have significant “dry powder.” Strategic buyers, including those that are still integrating recent acquisitions, remain opportunistic, looking to fill holes in their product lines and footprints. Buyers also expect attractive opportunities to present themselves in the second half should the macro environment deteriorate.
Aging owners have also expressed eagerness to transact in the near term, having already delayed exits. They will be closely watching the market over the next several months. Choppy market conditions over the last several years have convinced many smaller companies that they need more scale to compete effectively. These companies will be looking to sell or merge with others. Despite potential market risks, Anchor Peabody believes that these dynamics will drive robust M&A activities in 2025.
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.
The Kitchen and Bath Industry Show – Las Vegas:
We would love to see you at The Kitchen and Bath Industry Show in Las Vegas on February 25-27, 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.