Interface, Inc. (IFSIA) is the worldwide leading designer and manufacturer of carpet tile. The company was founded in 1973 by an entrepreneur from Atlanta who pioneered the product category and has long been taking market share from the Broadloom category. The business grew to over $1 billion of sales through both organic growth and acquisitions and has expanded successfully outside the States. Interface is the dominant player in its niche, and now controls about half the market share for carpet tile in the States and more than a third overseas. However, sales have declined over the last couple of years because of softness in commercial construction and renovation.We purchased this "fallen angel" because we think that commercial spending will soon recover and that carpet tile will continue to take share in the office environment and expand rapidly in non-commercial markets – residential, retail and healthcare. We expect earnings to double during the next up cycle and do not believe this is reflected in the stock. And, as with ASGN, we see Interface as an alternative acquisition candidate for larger flooring companies, and this is more of a possibility now that the founder has passed away and the company's share classes have been combined, so there is less resistance to such a transaction.
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