With blockbuster deals, wither pricing?
As two blockbuster lumberyard merges move closer toward fruition, the architects of the Builders FirstSource-ProBuild combination and the BMC-Stock Building Supply merger have frequently used the word synergy to describe their respective deals.
But based on the early public comments, the ability to leverage pricing through bigger buying power is not one of the areas where one plus one equals three.
In Builders FirstSource presentation to analysts and investors shortly after its proposed acquisition of ProBuild was announced, executives had nothing in their array of slides related to customer pricing. The value, growth and $110 million in synergies over the next couple of years would come from other areas, such as sharing complementary strengths and best practices.
The Builders FirstSource ProBuild deal will create a pro dealer with about $6 billion in annual sales.
CEO Floyd Sherman downplayed the possibility of improved pricing power. “In this business, it’s so highly fragmented and there is such a large number of competitors available to the builders in every market, [that] the market in itself is what sets the pricing.”
He added: “We’re going to be able to react better to it, [but] I really don’t see much in the way of pricing power.” Rather, it is better service and better-combined personnel that will lead to growth, he said.
That concept was echoed by executives at Stock and BMC, which according to Jim Major, Stock’s executive VP and CFO, has not projected any kind of price–related revenue increases. Synergies will come from enhanced network density, he said.
The combined BMC and Stock will create a $2.7 billion company.
“We currently believe half of the synergy will come from sourcing and supply chain initiatives,” he said, in addition to leveraging SG& A costs, combining best practices and utilizing “best in class technology.”
Stock Building Supply’s CEO Jeff Rea, who will remain on the board of the combined company, described the synergy in terms of improved service. “This opportunity to come together is about the ability to serve our customers better combined than we can independently,” he said to investors when announcing the deal. “ We see this very accretive from a service and solution standpoint.”
Georgia lumberyard embraces hardware
Griffin Lumber & Hardware opened two new store-within-a-store locations of Sears Hometown Stores in Cordele and Tifton, Georgia.
The new Sears Hometown Stores feature appliance brands such as Kenmore, Maytag, KitchenAid, Whirlpool, Bosch, Frigidaire and GE. Beyond appliances, the Cordele location also offers a large assortment of lawn & garden equipment and Craftsman tools.
"The addition of the new Sears Hometown Store inside our existing business will provide great value to the community," said CJ Griffin, owner. "We recognized the need for a broader product and service assortment to assist customers with their projects. Now, they'll have access to the nation's top appliance brands at low prices. Our dedicated and knowledgeable teams are excited to bring this service to the area."
The stores will celebrate their grand openings June 19-20.
Stock and BMC sell a merger
Pointing to charts with headlines such as “Compelling Strategic Combination” and “Highly Attractive Financial Profile,” executives from Stock Building Supply and BMC spelled out the advantages to their blockbuster merger plans during a investors call this week.
The two companies announced plans for a merger on Wednesday morning, describing the creation of a national building materials distribution platform with more than $2.7 billion in combined sales.
Announcment of the Stock-BMC deal follows less than two months a similar combination of even larger companies: Builders FirstSource and ProBuild Holdings.
Some of the positive factors that were described by Buidlers FirstSource during its acquisition announcement were also present in the Stock-BMC discussion. For instance, advantageous timing relative to the housing market recovery, and also a highly complementary footprint.
BMC brings strong presence in attractive markets in the West, Texas and the Southeast, while Stock — which has roots as Carolina Holdings — brings significant presence in the mid-Atlantic states. (See map.) With the merger, presence increases from 21 to 42 metropolitan areas. And the locations in 17 states represent 63% of 2014 single-family building permits.
As for timing, BMC and Stock referred to the housing starts data showing the long term average of annual housing starts at 1,449,000 — well above the figure recorded in each of the last seven years. That data sets the stage for a “leading building products distributor well positioned to grow profitably through the U.S. housing recovery and beyond.”
The Stock-BMC merger, expected to close in the fourth quarter of 2015, would propel the new entity to the number-two spot among LBM distributors, a distant second to the coimbined ProBuild and Builders FirstSource.