Blockbuster: Stock and BMC to merge
Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation ("BMC"), today announced the signing of a definitive merger agreement under which the two companies will combine in an all-stock transaction. The combined company is expected to have an implied pro forma enterprise value of $1.5 billion.
According to the release announcing the merger, the transaction will create a premier provider of lumber, diversified building products and construction services with over $2.7 billion in pro forma 2014 revenues and enhanced product and service offerings. The combined company will have expanded geographic reach in attractive, fast-growing regions across the United States, innovative technology capabilities and deep industry expertise to drive profitable growth and provide leading customer service.
The new entity will be based in Atlanta, and led by BMC CEO Peter Alexander, with executives from Stock and BMC serving in high executive posts. The plan is for the yards to continue to operate under their current banners after the merger.
Among the numerous benefits cited:
• An enhanced growth, margin and return profile.
•A strong balance sheet and significant cash flow to support long-term strategic growth in a highly fragmented industry.
•Significant and achievable synergy potential rising to $30 – $40 million annually within two years.
•An expanded footprint from 21 to 42 metropolitan areas, principally in the fast-growing South and West regions.
•A shared deep commitment to providing solutions to customers while delivering a broad range of quality products and services.
•Projected accretion to Stock Building Supply's earnings per share in the first full year following close of the transaction.
"We expect this compelling strategic merger will provide significant benefits for customers, shareholders, suppliers and associates of both companies," said Jeff Rea, President and Chief Executive Officer of Stock Building Supply. "The continuing recovery of the U.S. housing market is expected to generate strong demand for building materials, services and solutions, and together we believe BMC and Stock Building Supply are better positioned to capitalize on this opportunity. Upon close of this transaction, I look forward to continuing on our board to support the combined company and have great faith in the combined leadership team's ability to create significant shareholder value by accelerating the implementation of our common strategies."
Peter Alexander, BMC's Chief Executive Officer, said, "We are very pleased to be uniting two leading companies with complementary strategies, products and services; a shared commitment to superior customer experiences; strong internal performance-based cultures and operations in high-demand geographies. The combination of our two highly complementary platforms will enhance our ability to provide customers with best-in-class products and services across an expanded geographic footprint. We have great respect for what the team at Stock Building Supply has accomplished and upon close of this transaction, I look forward to leading the combined team as we enter the next exciting phase of our transition and the ability to fund our growth."
Under the terms of the agreement, which has been unanimously approved by the Board of Directors of both companies, BMC shareholders will receive 0.5231 newly issued Stock Building Supply shares for each BMC share. Upon the closing of the transaction, BMC shareholders will own approximately 60% of the merged entity, with Stock Building Supply shareholders owning approximately 40%. The transaction is structured to be tax-free to the shareholders of both companies, and is expected to close in the fourth quarter of 2015, subject to approval by both Stock Building Supply and BMC shareholders and typical regulatory clearances.
Funds affiliated with Davidson Kempner Capital Management LP, Ravenswood Investment Management and MFP Partners, L.P., which collectively own approximately 52% of BMC's outstanding common stock, and funds affiliated with Gores, Stock Building Supply's largest shareholder, which own approximately 38% of Stock Building Supply's outstanding common stock, have each agreed to vote in favor of and fully support the transaction.
Upon closing of the transaction, BMC Chief Executive Officer Peter Alexander will serve as Chief Executive Officer of the combined company and will be a member of the Board of Directors. Jeff Rea, the current Stock Building Supply President and Chief Executive Officer, will remain a member of the Board of Directors of the company. The new leadership team is expected to include representatives of both companies, with current Stock Building Supply Executive Vice President and Chief Financial Officer Jim Major assuming the role of Chief Financial Officer, Stock Building Supply Executive Vice President and Chief Operating Officer Bryan Yeazel assuming the position of Chief Administrative Officer and General Counsel and current BMC Chief Integration Leader Tony Genito leading the integration of the two businesses. In addition to Mr. Alexander and Mr. Rea, the remainder of the combined company's Board of Directors will be comprised wholly of independent directors, including representatives from each company's current board. The combined company will be headquartered in Atlanta, Georgia. and will have its main operating center in Raleigh, NC and plans to continue to operate under both the Stock Building Supply and BMC names in their respective local markets.
Alexander has 21 years of experience in the distribution industry. He joined BMC as a director in January 2010 and subsequently was appointed Chief Executive Officer in August 2010. He has led BMC as it has grown into one of the industry-leading providers of residential building products and construction services in fast-growing regions throughout the U.S. Prior to BMC, Mr. Alexander served as President and Chief Executive Officer at ORCO Construction Distribution. He previously served in leadership roles at several companies in the technology, retail/distribution and service industries, including GE Capital, ComputerLand (now Vanstar), Premiere Global Services and Coast to Coast Hardware.
The transaction is expected to result in a combined company that is better positioned to accelerate its growth and deliver significant value to all stakeholders as it continues to accelerate both Stock Building Supply's and BMC's existing strategies of capitalizing on expansion opportunities in a fragmented building materials market to strengthen its long-term growth position.
BMC and Stock Building Supply both possess complementary product and service offerings, similar operating principles and a customer service focus that will enable a smooth and efficient integration. The combined company will have a strong position in growth markets across 17 states. Together, the companies will also provide a comprehensive portfolio of building materials, including millwork and structural frame manufacturing capabilities, consultative showrooms and value-added installation management that supports customers' needs for turnkey solutions. Additionally, BMC's businesses will provide expanded opportunity to introduce Stock Building Supply's industry-leading eBusiness platform.
TW Perry opens expanded Millshop
Maryland-based TW Perry has relocated its Millshop to a bigger piece of real estate, giving the building material supplier 80,000 sq. ft. to work with.
With nearly double the space of the previous location, the new facility will feature a Millshop and warehouse with a production door shop, custom wood and PVC fabrication shop, a custom cabinet division, two pre-finishing lines for stain-grade and paint-grade finishing, and a moulding line.
Also included in the new space is a 9-head moulder with an automated priming and infrared drying line: machinery that will allow for in-house custom run mouldings.
There will also be office space and a customized conference room for meeting with customers.
Other perks that come with the added space: more inventory, and more in-stock door profiles and sizes.
Furthermore, TW Perry will be introducing an in-house quoting program specific to the Trustile and production door lines, which will decrease quoting lead times and increase accuracy.
The transition to the new location took about 6 weeks in total, thanks to the leadership of general manager Ben Messner.
“I am honored to have worked with such a resilient team during this complex transition to our new facility," he said. "Our experienced craftsmen and their attention to detail have cleared the way for TW Perry’s future in Custom Millwork Excellence. We intend to not only be the best millshop in the mid-Atlantic but in North America. TW Perry is optimistic that this transition will allow us to fully implement new product lines and become more efficient in our daily operations.”
TW Perry's Custom Millshop designs and manufactures custom entry systems, mouldings, mantels, cabinetry, paneling and wainscoting, libraries, entertainment centers and rooms, wine cellars and other types of millwork.
From the issue: Criticism for FSC rules
Who gets to use the Forest Stewardship Council logo? The rules aren’t as simple as you might think. Further, the rules are generating confusion among contractor customers as to what really counts for LEED building projects, according to independent lumber dealers.
One of those dealers critical of the status quo regarding FSC certification is Sean Fogarty, VP of Osborne Lumber Company of Newark, California. His complaint is that some companies, including Home Depot, get to have their cake and eat it too. More specifically, they get to promote the FSC logo, and yet many of their locations — most, in fact, according to the FSC — do not keep the chain-of-custody records demanded by the LEED standard.
FSC Chain of Custody Certification continues to be an important sales point for many pro dealers, because the federal government’s LEED program, which recognizes buildings for their environmental friendliness, requires FSC-certified lumber. As long as builders desire LEED accreditation, and they do, dealers will feel an incentive to maintain FSC certification.
According to Fogarty, the desire to be certified is in part a concern for the environment, and in part a desire to participate in LEED-related projects. FSC chain-of-custody certification means paperwork, he said.
It means fees (ranging from $500 to $5,000 per year, depending on the size of the business). It also means the time and attention and continued training of yard employees. And FSC-certified product must be segregated from non-FSC products.
Given that investment, Fogarty and others see a fundamental unfairness when competitors can use the logo without achieving full FSC chain-of-custody certification.
For instance, there’s The Home Depot. According to the FSC, only a few Home Depot outlets are certified. These are typically in bastions of LEED activity, such as the Bay area and Portland, Oregon. The Atlanta-based home improvement giant can sell FSC-certified products without becoming certified.
Under this system, Fogarty believes there are contractors who think they’re getting FSC-certified products that comply with LEED, when in fact, they’re just getting the logo.
He pointed to a television commercial that appeared during a baseball game last year. The commercial showed Corey Brinkema, president of the Forest Stewardship Council in the United States. He was promoting sustainable forests in general and the FSC in particular. It ended with a pitch: Buy our FSC lumber at The Home Depot.
“That just steamed me,” he said. “It’s the FSC-certified dealers who are paying for the program. What’s going on here?”
The FSC says there’s no special treatment for Home Depot. According to Brad Kahn, the communications director for the Forest Stewardship Council in the United States, retailers such as the Home Depot (and others) can sell FSC-certified products without becoming certified. “This is true for any lumberyards and not special to The Home Depot,” Kahn said in an email to HBSDealer.
He said if independent lumberyards want to use the FSC logo, they can alert the FSC and fill out a form. Costs will generally be low, he said.
But Fogarty thinks that provision lacks logic. “If I were to place a unit of FSC-certified 2x4s next to non-certified stock, I would be in violation of the FSC standard. It seems you would either have to use one program or the other.”
Fogarty says he’s not bashing Home Depot — it’s the rules that are at fault.
“I see how it makes sense for them to have two separate programs — one strict program for LEED integrity, and one loose program for marketing visibility. But it is misleading to contractors and puts [companies like us] at a competitive disadvantage.”