US LBM continues its expansion
Sunrise, Florida-based Rosen Materials and Dayton, New Jersey-based Direct Cabinet Sales are the latest building products companies to join the US LBM family of companies.
The Rosen acquisition increases US LBM’s total wallboard and related specialty product revenue to more than $280 million. Meanwhile, the DCS deal broadens the company's presence and capabilities in the Northeast and Florida cabinetry markets.
Specific terms of the deals were not released.
“We are so pleased to be aligning ourselves with an organization with such an exceptional standing in our industry,” said Drew Rosen, president of Rosen Materials. “We look forward to working with the US LBM team to expand our footprint and product offerings.”
Originally founded in 1996 by Drew Rosen, Rosen Materials supplied South Florida and Las Vegas. It quickly became one of the largest privately held gypsum distributors in South Florida. Today it operates 19 locations across Florida, Georgia, Illinois, Nevada and New Jersey.
“The addition of Rosen continues our strategy to diversify from both a product and geographical perspective,” said L.T. Gibson, president and CEO of US LBM. “Rosen Materials has a proven team which complements the US LBM culture. We look forward to partnering with the Rosen associates to continue on their path of growth and success.”
In addition to gypsum, Rosen’s product mix includes metal framing, sheet goods, kitchens, baths, countertops, stucco, brick, stone, insulation and lumber.
The acquisition of Rosen Materials emphasizes US LBM’s commitment to expansion of its wallboard line, along with other specialty product categories. The company’s $280 annual sales in this area comes from Rosen in addition to Richardson Gypsum, Wallboard Supply Company, Feldman Lumber and American Masons.
The company says it continues to look to acquire more Southern-based distributors and make other partnerships to expand its footprint throughout the United States.
Meanwhile, Direct Cabinet Sales designs, installs and distributes kitchen cabinetry and related products in the Northeast and Florida markets. It operates five showrooms and a distribution center in New Jersey, as well as a showroom in Boca Raton, Florida. The company's founder, Joe DeMussi, will continue in his current role as president, leading day-to-day operations.
"We had several options of who to partner with and strongly feel that US LBM gives us the best opportunity to grow our business, increase our geographical footprint and continue to be the market leader in our industry," DeMussi said, in a prepared statement.
Builders’ Big Deal: Opportunity mixed with debt
Wall Street reacted positively to the Builders FirstSource plan to acquire ProBuild Holdings. Shares of BLDR increased 17% on Tuesday, on top of a 68% gain on Monday.
According to an industry source speaking on background, Warburg Pincus provided financing for the transaction — a $1.63 billion deal — after Fidelity’s Devonshire Investors arm had been shopping around the ProBuild Holdings business to a handful of possible buyers, including other private equity firms.
In the end, it was Dallas-based Builders FirstSource that wrote the press release explaining the benefits of the deal. Those benefits, the company said, include an enhanced product offering, significant cost savings, limited overlapping regional coverage and the opportunity to ride the housing recovery as a diversified national dealer.
Sales at ProBuild were about $4.5 billion in 2014. That’s almost three times the sales at Builders FirstSource — about $1.6 billion.
One observer speaking on background described the deal as a win on multiple levels, as it shows the investment community standing up for the lumber and building material industry “in a very big way.”
Another reason for the industry to welcome the combination of the two pro dealers is the deal’s potential to relieve some of the competitive pressure that have built up in those markets where both banners compete head-to-head. A map of the footprint of the combined companies shows large swaths without any overlap, but some redundancy in Texas, Florida, Tennessee and the mid-Atlantic states.
At last count, Builders had 80 locations, compared to ProBuild's 364 locations.
Some sources expressed concern over the debt involved in the deal. On a pro forma basis, the combine company has net debt of $2.1 billion. The company pointed to a financing plan that included $1.6 billion from new debt.
The debt is big, but so are the cost savings. Builders anticipates $100 million to $120 million annual run-rate cost savings within two years. And the timing, according to Floyd Sherman is right. "Together, we will establish a broader, more efficient platform of manufacturing and distribution capabilities, supported by high-quality service from the best talent in the industry.”
Another industry executive, less optimistic than the first, pointed to “two billion dollars of debt on the balance sheet in an industry that doesn’t like leverage."
In addition to overcoming debt, observers pointed to the standard challenge of cultural and systems integration.
"There is a great opportunity here for Floyd [Sherman] and the team, but it's not one that's going to be easy, and it won't be any more easy with the high level of debt put on the company."
In the meantime, the announcements of job cuts are expected as a matter of course.
"They’re counting on some major synergies and major cost cutting efforts," said the industry source. "There are a lot of people who are going to be left without jobs."
“Wall Street loves it,” another source said. “We’ll see if the customers love it or not.”
Big deal: Builders FirstSource to acquire ProBuild
Builders FirstSource, Inc. a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today announced that it has entered into a definitive purchase agreement to acquire ProBuild Holdings LLC , in an all-cash transaction valued at approximately $1.63 billion.
The transaction, which was approved by the Builders FirstSource Board of Directors, is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2015.
ProBuild was created in 2006 by Devonshire Investors, the private equity firm affiliated with FMR LLC, the parent company of Fidelity Investments. With approximately $4.5 billion in revenue in 2014, ProBuild is one of the largest distributors of building materials to professional builders, contractors and project-oriented consumers in the United States. ProBuild operates lumberyards, component facilities, millwork shops, gypsum yards and retail stores across 40 states. Together, Builders FirstSource and ProBuild will have an enhanced portfolio of products with increased breadth and depth within its categories, including lumber, windows, doors, millwork, hardware, roof and floor trusses, engineered wood products, gypsum, roofing, metal and concrete products, cabinets and countertops. In addition, the combined company will better serve its customer base through its broader scale and operating footprint, enabling it to deliver products and services more effectively and efficiently.
Floyd Sherman, Chief Executive Officer of Builders FirstSource, said, "We are very pleased to announce this compelling combination with ProBuild to create a more diversified company with enhanced scale and an improved geographic footprint that will drive significant value for our customers and stockholders. As the U.S. housing market continues its recovery, we believe now is the ideal time to position Builders FirstSource for its next phase of growth and value creation. Together we will establish a broader, more efficient platform of manufacturing and distribution capabilities, supported by high-quality service from the best talent in the industry. In addition, each of our companies has complementary strengths, and we plan to learn from each other by implementing best practices across the combined company. Builders FirstSource and ProBuild have two of the best sales forces in the industry and share a commitment to enhancing the deep, long-standing customer relationships that each company has cultivated. We look forward to working with the ProBuild team to plan for a seamless integration that will enable us to create exciting new opportunities."
Paul S. Levy, Chairman of the Board of Builders FirstSource and Founder of JLL Partners, said, "Since JLL Partners founded Builders FirstSource in 1998 and took the company public in 2005, we have been intently focused on creating a leading platform that professionalizes the building products industry through a best practices approach to conducting business. We are accomplishing our objective by providing a variety of products and services as well as personalized attention to our customers at the local level, and the combination announced today will significantly advance these efforts across a broader operating footprint. We are confident that the substantial additional resources that ProBuild brings to Builders FirstSource will help drive significant value creation over the long-term."
David A. Barr, Managing Director, Co-Head of Industrial and Business Services, Warburg Pincus, commented, "When we first partnered with Builders FirstSource, we saw significant opportunities for the company to pursue acquisitions in the highly fragmented building products distribution industry. Builders FirstSource has established itself as a leader in its field, and this combination with ProBuild will enable the Company to continue to capitalize on favorable market trends in the housing market."