February 1, 2020

CEO Conversations: Ralph Bruno, CEO of Derby Building Products

The CEO of Derby Building Products has been disrupting industries long before Apple ever unveiled the iPhone or Amazon sold a single book

Ralph Bruno, the CEO of Derby Building Products (“Derby”), has become a master of what he calls the “substitution” play in the building products sector. Having spent nearly his entire career in the synthetic materials industry, he was named as the CEO of Derby in 2017 to oversee the company’s push to replace traditional wood and stone cladding with polymer alternatives.

Clearview first invested in Derby’s predecessor, Novik, Inc. (“Novik”), out of its third fund, Clearview Capital Fund III, LP, taking the company private in 2014. The acquisition of Exteria Building Products (“Exteria”), two years later, helped to reinforce the combined company’s distribution footprint in the U.S., while also complementing Novik’s polymer shake product set and adding a masonry line of polypropylene stone alternatives.

For Ralph Bruno, Derby’s growth strategy closely mirrors a commercial blueprint he has used before to build out the Trex® (“Trex”) and AZEK® (“AZEK”) brands of wood-alternative building products. In a Q&A, he highlights the opportunity he sees for Derby and also examines the different roles private equity can play as companies progress along their maturation curve.

Q: You’ve become something of a serial entrepreneur in the building products sector and in the composite niche in particular. You were integral helping Mobil Oil get Trex off the ground and putting it on the path to where it is today – a NYSE-listed $3.8 billion company. You were the vision behind the AZEK brand, which was originally seeded as a division within former Clearview portfolio company Compression Polymers Group (“CPG”). CPG, meanwhile, was sold four years ago for a reported $1.5 billion, driven in large part by the success of the AZEK brand. So I imagine you’ll be following a similar strategy at Derby?

A: I enjoy making small companies big. I’ve been in the synthetic materials industry my entire career. But going back to the infancy of Trex, we basically started with a new technology — composite decking in this case — and from there figured out all of the most compelling applications in which it could provide a better competitive alternative. Anyone who has had to weather seal a deck, replace warped boards, or get a splinter probably understands its value proposition over traditional wood products.

In conceiving and developing the AZEK brand, we pursued a similar “substitution” play. AZEK, though, used PVC material for decking, railings, and trim and moulding alternatives to wood. AZEK was a division within CPG. But again, we started with basically nothing and helped create a company worth over a billion dollars.

Today, we see the same kind of opportunity at Derby, known for its Tando™ (“Tando”) and Novik brands of exterior cladding products such as polymer cedar shake siding or composite stone materials.


Q: Derby was formed through Clearview’s 2014 take-private acquisition of Quebec City-based Novik in 2014 and, two years later, its merger with Miami-based Exteria. You were named CEO roughly a year later. What have been some of the differences between this opportunity and your work to get Trex and AZEK off the ground?

A: With both Trex and AZEK, we were essentially starting from scratch. In this case, we’ve had to allocate capital early on to fix some operational issues, build out a sales force and then refine the existing brands. These are fairly typical investments as part of an integration, but they’re also critical to create some stability prior to really accelerating on our growth plan. We’re at a point now, with our sea legs under us, where we can really get after the market opportunity in front of the company.

Like the other situations, the Tando and Novik brands should resonate as a substitution for more traditional products like wood and stone. Some of this is being driven by certain architectural trends. For instance, most homes today are using mixed materials, with some combination of traditional lap siding, stained shakes, and stone products creating a more dynamic aesthetic on the exterior. Ten years ago, homeowners were content with a little red or little yellow house; today, homes at all price points are multi-colored and multi-textured. We think this will continue to drive sales in both the new construction and repair and remodel markets.

Another trend, that has more of a macro-economic tailwind, is that with the job market at near capacity, it is creating labor shortages. As a result, contractors are gravitating to easier-to-install alternatives. Most of our products can be installed by one person, and usually at a fraction of the time it takes to fit traditional materials. This is particularly the case with our TandoStone products, eliminating the need to bring in stone masons, which can be costly and time consuming.

Finally, moisture management is becoming a bigger factor both inside and outside the home. Outside, polymer materials are impervious to snow and rain. In May 2019, it was reported that the U.S. logged its wettest 12 months on record. So this is something homeowners are factoring in, which only drives demand. Inside the home, as our residences have become more energy efficient, an unintended consequence is that they can’t “breathe” as well, or moisture can’t get out. This means it gets caught in the walls or on the backside of any exterior cladding. We manufacture our products with a built in drainage plane allowing for airflow and condensation to escape behind the product.

These secular trends, collectively, provide a nice backdrop as we embark on another substitution play. It also doesn’t hurt that the housing trends are largely positive. Housing starts have stabilized so far this year, while the R&R market will continue to benefit from the fact that approximately 75% of all the homes in the U.S. are 35 years or older, meaning they will be needing new exteriors.


Q: You come from a sales background, which seems to orient you well toward understanding the market opportunity and then how to pursue it. Can you talk a little bit about your management philosophy?

A: I’ve found that leaders often come from one of three disciplines: you have the CEOs who bring a financial mindset, CEOs that may have come from an operations background, and then CEOs who come at it from the commercial perspective. Depending on the goals or strategy of the company, or where it is in its maturation, each of these disciplines can be appropriate. But Derby is a growth company. It’s important to understand the substitution opportunity, but to do that, you have to appreciate the evolving needs of end users and then recognize the shortcomings of existing solutions.

Operations executives, on the other hand, tend to be good if the goal is to squeeze efficiencies out of a larger company, and then financial leaders are valuable if you’re pursuing a rollup or consolidating an industry. The beauty of working with private equity is that they can bring this entire skillset to bear. I think one of the reasons I gravitate to these smaller growth opportunities, though, is because I really enjoy it. I wouldn’t necessarily want to be the guy consolidating an industry and tasked with finding synergies and cutting costs. But finding ways to be creative and growassets is where my passion lies, so that has probably helped me throughout my career.


Q: Derby represents your second stint with Clearview. How would you describe the role of private equity, generally, in helping to facilitate growth?

A: I’ve actually worked with two other firms as well, so this is my fourth go round with private equity. Generally speaking, though, investors can bring a real breadth of experience and expertise, particularly around the financial components. They can also recognize the shortcomings in a business and what’s required for growth — whether it’s an ERP system or certain leadership roles that need to be established or filled.

But private equity can also mean different things to different people. A distressed firm or a value shop is going to come at an investment from a far different perspective. My advice for CEOs would be to really understand the ethos of the firm, ask to speak to other executives who have gone through the full cycle – from investment to exit – with a given sponsor. It can be very enlightening.

I’ll give you an example. Going back to my time at Trex, one of the biggest challenges we encountered in building that business was just being able to keep up with the orders. When sales took off we didn’t have the manufacturing capacity, so we couldn’t get the product to the distributors. When I was at AZEK, and I first met Jim [Andersen], I am quite certain he thought I was crazy. Because I insisted that the same thing was going to happen, and we could not afford to be put in a position of not fulfilling orders as this will open the door to competitors. From “day one,” anytime this was brought up to Jim, he would just respond, somewhat casually, that “you’ll have the capacity.”

Well, we grew the brand by over $100 million in a short period of time and we never had a single order that was late. They invested in the capacity like they said they would, even though it required a certain leap of faith. This allowed us to build and maintain credibility with our distribution network, and that can make or break a company in this space. But it’s a different mindset than a financial buyer focused only on the bottom line. That’s why you really have understand the strategy and investment philosophy of the firm you aim to partner with.

I’d add too that Jim has always been fully transparent, even when it’s a difficult conversation and he’s delivering thoughtful but candid advice – counsel that I may not want to hear. It’s often overlooked, but this kind of piercing sincerity is just as important when it comes to instilling trust and facilitating a long-term partnership that can sustain itself over time.

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