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IW 50 Best: Patrick Industries Rides RV Resurgence to the Top

The Elkhart, Indiana, manufacturer continues to strengthen its market position through acquisitions.

Americans are bringing the comforts of home to the open road, once again. The recreational vehicle market is booming right along with the economy, and that's good news for Patrick Industries Inc. The Elkhart, Indiana, manufacturer of components for the RV market is the top manufacturer on the 2018 IndustryWeek 50 Best U.S. Manufacturers list for the second-consecutive year.

The company's aggressive approach to growth through acquisitions has helped it expand geographically and support its "customer-first" strategy.

"Their ability to continue growing their content for RV … is rising at a very impressive clip," says Daniel Moore, managing director of research for CJS Securities Inc. "That's driven both through organic share gains and acquisitions. Oftentimes, those acquisitions then lead to increased market share within the product categories they're acquiring,"

Patrick Industries has completed 40 acquisitions since 2010, according to a September 2018 investor presentation. In 2017 alone, the company completed seven acquisitions for $249 million, with annual revenues valued at $309 million. The deals contributed to Patrick's 34% revenue increase in 2017, to $1.63 billion.

 

Strategic Focus Pays Off

Patrick Industries produces almost anything you touch inside an RV, including decorative vinyl, cabinet doors and countertops. It also sells to the manufactured housing and marine industries, as well as various industrial markets. Nearly 70% of Patrick's sales are in the RV market, but the company continues to expand in other markets.

Todd Cleveland began positioning the company for future growth when he took over as CEO in 2009. At the time, the company was struggling after the manufactured housing and RV markets dropped to their lowest shipment numbers in decades. 

The company divested noncore operations, including its aluminum extrusion plants. It also adopted key operating strategies, including the reduction of inventory levels through vendor managed inventory programs and continuous improvement initiatives to meet shorter lead times and to increase flexibility, according to its 2008 annual report.

The industry began to rebound as unemployment levels dropped and consumer confidence increased. Millennials and first-time homebuyers also have had a major impact on industry growth. In 2017, RV shipments reached a record 504,599, a 17.2% increase over 2016, according to the RV Industry Association. That trend is expected to continue in 2018, with current projections of approximately 540,000 shipments.


Growth Through Acquisitions

The company's largest acquisition in 2017 was its purchase of Ontario, California-based LMI Inc. for $81 million. LMI is a designer, fabricator and installer of specialty glass, mirror, bath and closet building products for residential housing and commercial high-rise builders, general contractors, retailers and RV manufacturers in the U.S.

While the acquisition strengthens the company's position in the RV market, it also bolsters the company's position in other key markets, said company CEO Todd Cleveland, when Patrick announced the deal.

"This acquisition is well-aligned with our strategic initiatives and capital allocation strategy and represents an excellent opportunity to expand and diversify our presence in the industrial markets and enter new sales channels with large scale home builders, commercial contractors, and big box retail customers," said Cleveland.

The LMI acquisition presented an opportunity to capitalize on the strong Western residential housing markets, company President Andy Nemeth said at the time.

"These western markets and certain other key regions of the country have experienced continued steady growth with strong industry tailwinds, and have a favorable outlook with continued pent-up demand for high-quality, affordable homes," said Nemeth.   

Another major acquisition was the $73.3 million purchase of Leisure Product Enterprises. LPE primarily serves the marine and industrial markets, including boat dash and helm assemblies and assemblies for the industrial, commercial and off-road vehicle markets.

The industrial market sector accounted for 11% of the Company's sales in 2017, and revenues from the marine industry represented 7% of the Company's sales in 2017.


Putting the Customer First

The company's acquisitions align with its Customer FIRST (Fulfillment, Innovation, Relationship, Serve and Trust) strategy. For example, its purchase of Elkhart-based RV transportation company Indiana Transport should enhance its ability to serve customers nationwide and grow markets, such as its marine business.

The company noted Indiana Transport's ability to provide quick turnaround times and its use of a "cutting-edge" IT platform as key attributes of its customer-centric focus. Indiana Transport's customer base includes manufacturers and dealers across North America.

Elkhart is the RV capital of the world, with major OEMs such as Thor Industries located around the corner from Patrick, which has helped the company gain expertise in customer-centric practices, such as just-in-time delivery, says Moore.

"The relationship is set up such that the key suppliers sit almost across the street from OEMs, and as a result, the ability to deliver high-quality, high flex volume, just-in-time (delivery) is very critical," Moore says. "They've really mastered that ability to deliver product faster, cheaper, better and with greater reliability, and as a result, have developed a strong relationship with their customers."

Looking ahead, Patrick expects to continue pursuing additional acquisitions. The company's capital-allocation strategy is focused heavily on acquisitions, which accounted for nearly 80% of capital deployed in the first half of 2018, according to the September 2018 investor presentation.

"In alignment with our strategic growth plan, we have employed a disciplined capital allocation strategy aimed at growing and re-investing in our business that has resulted in organic and strategic revenue growth, and strong cash flow generation to support our strategic initiatives," said Cleveland in a written statement to IndustryWeek.

Patrick has already completed seven acquisitions for $258 million in the first half of 2018. The company also plans to invest in its manufacturing operations. The company expects to spend $25 million to $30 million on capital expenditures in 2018, up from $22 million in 2017 and $15.4 million in 2016. Its strategic focus for capital expenditures includes automation, increasing capacity and improving efficiencies.

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