Builders FirstSource and BMC join forces

In surprising move among the top of the lumber and building material ranks, Builders FirstSource and BMC Stock Holdings announced this morning that they have entered into a merger agreement.

Combined, the two companies will create a building materials supplier and builder services provider with more than $11 billion in annual sales.

Under terms of the agreement, already approved by the board of directors of both companies, BMC shareholders will receive a fixed exchange ratio of 1.3125 shares of Builders FirstSource common stock for each share of BMC common stock. 

Upon completion of the merger, existing Builders FirstSource shareholders will own approximately 57% and existing BMC shareholders will own approximately 43% of the combined company on a fully diluted basis.

Based on Wednesday's stock closing prices, Builders FirstSource had a market value of roughly $3.2 billion and BMC had a value of $2.2 billion.

The deal is expected to close in late 2020 or early 2021, the companies reported.

After a 90-day transition period following the completion of the merger, Chad Crow, current Chief Executive Officer of Builders FirstSource, will retire as previously announced and will be succeeded as Chief Executive Officer of the combined company by Dave Flitman, current CEO of BMC. 

“This is a transformational opportunity that unites two outstanding and complementary companies, providing enhanced scale and superior returns as we build upon a new, larger platform,” Crow said in a statement announcing the deal. “Builders FirstSource and BMC together will have a very diverse portfolio of value-added offerings and greater resources to more closely partner with and serve customers.”

Five years ago, Builders FirstSource was the lead player in another major LBM merger when it acquired ProBuild

Following this merger, the combined Builders FirstSource and BMC will operate a network of 550 distribution and manufacturing locations in 42 states, including 44 of the top 50 metro markets. The company will also have a workforce of more than 26,000 team members.

Along with new top-line growth opportunities, the combination of dealers is expected to generate approximately $130 million to $150 million in annual run-rate cost savings within three years.

Peter Jackson, chief financial officer of Builders FirstSource, will serve as CFO of the combined company. The transition and integration of the combined company will be led by Dave Rush, chief operating officer of Builders FirstSource’s East Region, who led the integration team for Builders FirstSource in its ProBuild acquisition, and Jim Major, CFO of BMC.

"We believe this strategic combination of two great organizations is an exciting step forward for both BMC and Builders FirstSource, as well as for our associates, our customers and other key stakeholders," Flitman said.

During a live webcast this morning, Flitman noted that housing has been surging in the summer of 2020 following a slowdown in March and April brought on by COVID-19 lockdown conditions. 

"The housing market has proven to be resilient," he said. "Under building and pent-up demand support our belief that long term housing fundamentals remain fully intact."

Upon closing, the combined company’s Board of Directors will have 12 directors, consisting of seven members from the Builders FirstSource Board of Directors and five members from the BMC Board of Directors. Paul S. Levy, Co-Founder and current Chairman of the Board of Builders FirstSource, will serve as Chairman of the Board of Directors of the combined company.

Last month, Builders FirstSource reported second quarter sales increased 2.2% to $1.946 billion from sales of $1.904 billion for the second quarter 2019. The Dallas, Texas-based company also reported a net income $78.9 million for the period, rising 18.5% from a net income of $66.6 million in the second quarter last year. For 2019, Builders FirstSource sales increased 79% to $6.4 billion. 

BMC second quarter sales increased 3.5% to $979.9 million compared to second quarter 2019 sales of $946.4 million. Profits also jumped more than 22% to $43.6 million. The dealer had sales of $3.6 billion in 2019.

The combined company will be headquartered in Dallas while maintaining offices in Raleigh, N.C. where BMC is based.