👉 Background: James Hardie is the $20 billion Australian buildings material company providing everything from external cladding, cement sheets, insulation and pipes. It listed on the ASX, (formerly Sydney Stock Exchange) way back in 1951. And if you’ve heard the James Hardie name before, it might be because it used to manufacture products containing asbestos which has led to MANY lawsuits.

‍👉 What happened: Now, James Hardie has announced the acquisition of a rival named Azek for $14 billion in cash and scrip. Azek makes sustainable outdoor living products like decking and railings. And, this acquisition was at a more-than 37% premium to its last closing share price.

‍👉 What else: Many of James Hardie's investors believe that James Hardie has overvalued Azek. As a result, James Hardie’s share price plummeted more than 14% and investor disapproval was clear.

What's the key learning?

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‍💡In M&A, bigger isn’t always better — especially when the market sees more risk than reward. These kinds of “transformational deals”, often overpromise and underdeliver. We've seen it with Reece Group and Ampol with their previously failed acquisitions.

💡This deal has already raised red flags with James Hardie investors because the price is steep — which is 40x Azek’s net profit, and is much higher than James Hardie’s 20x net profit valuation. It also relies on $350m in synergies from the acquisition.

💡So clearly James Hardies’ investors are voting with their feet… and their wallets!