The construction market in the U.S. – particularly on the residential side – was one of the first to collapse going into the “Great Recession.” It is also proving to be one of the slowest markets to recover. Commercial construction has slowed significantly, though institutional construction seems to have held up some.
Inventory destocking was common in the building materials sector. At the same time, lumberyards and building material stores became more reliant upon distributors to serve as warehouses for materials, says Craig Webb, editor of ProSales Magazine: “There was a much greater acceptance of the phrase ‘Let the distributor be your warehouse’ during the recession.”
And, more builders are recognizing the negotiating and buying power that distributors wield. When construction was booming, the largest builders tended to believe “anything between the manufacturer and the job site was just a cost that need not be incurred,” Webb says. “During the recession, the skills of the distributor became more important.”
Many building materials companies saw opportunities for expansion with the collapse of the building materials market in the past couple of years. And some significant deals made major headlines throughout the year. “There’s still debate in the industry on the direction M&A will take,” Webb says. “The jury is still out on whether being national does any good.”
Several companies that filed for bankruptcy in 2009 were acquired by bigger competitors, including ORCO Construction Supply’s acquisition by HD Supply White Cap and Stock Building Supply’s purchase of Bison Building Holdings.
While the acquisitions are good news for the parties involved, there will likely be even more companies in the industry going out of business as recovery develops, Webb says. “They’re not going to have the cash or the credit availability to restock their inventories or serve people as the economy grows.”
Here are some M&A highlights for 2009 and the beginning of 2010:
Stock Building Supply
At the end of 2008, Wolseley plc was already making overtures that it could not maintain the continued losses that its U.S. building materials arm was experiencing. And in March 2009, then-CEO Chip Hornsby confirmed it: “We are determined to exit the business.” Stock Building Supply entered Chapter 11 bankruptcy protection in May.
Private equity firm subsequently took a controlling interest in the business as part of a joint venture with Wolseley. Prior to the bankruptcy filing, Stock was reported to have been losing about $1 million per business day. Since the spin-off from Wolseley, Stock has streamlined its operations to focus on specific markets, and several old Stock properties have been taken over by local companies. And Stock itself got back into the acquisition game earlier this year with the announced acquisitions of National Home Centers and bankrupt Bison Building Holdings.
US LBM Holdings
Perhaps one of the more unexpected results of Stock’s move to streamline was the emergence of what is already proving to be a major competitor: US LBM Holdings. Former Stock vice president L.T. Gibson approached BlackEagle Partners, a private equity firm, about purchasing three Stock locations that had been slated for closure. BlackEagle agreed, and US LBM Holdings was formed with Gibson as president and CEO.
Since its creation from those three locations in October 2009, US LBM Holdings has grown to 30 locations in six states through acquisition. For its first two months of operations, the building materials company had revenues of $22 million. “Annualized, those revenues would have likely been somewhere in the $325 million to $350 million range,” Gibson said.
And the new company is actively pursuing additional acquisition opportunities, says Brian Tolles, a board member for US LBM Holdings from BlackEagle Partners. “We may slow down a little bit off the pace we’re already on but we already have a few projects in the works.”
ABC Supply and Bradco Supply
The announcement that ABC Supply will be buying Bradco Supply Corp. brings together two of the top 10 distributors of our building materials market leaders list.
With combined revenues of about $4.1 billion, the joint company would easily overtake ProBuild Holdings for the No. 1 spot. Bradco itself has been an active acquirer over the past year, completing four acquisitions in four states, including Colorado, New York, North Carolina and Illinois. Details of the ABC-Bradco transaction and the impetus behind it have not been disclosed. The deal is expected to close by the end of June 2010.
After sales plummeted in 2007 and 2008, ORCO Construction Supply, Livermore, CA, began pursuing a merger or acquisition opportunity in November 2009. Greg Grosch, co-founder of White Cap Construction Supply and executive there before its acquisition by HD Supply, expressed interest in a bankruptcy deal, leading to the Chapter 11 filing in April 2009.
However, the filing also caught the attention of HD Supply White Cap, which eventually won the bidding war for ORCO. HD Supply White Cap entered into a purchase agreement for the assets of ORCO for $17 million. In November 2008, Hal Look, then senior vice president of marketing at ORCO, expected 2008 revenues to be around $180 million.
The Hillman CompaniesThe Hillman Companies, a distributor of fasteners, key duplication systems, engraved tags and related hardware items, will be acquired by private equity firm Oak Hill Capital Partners. Oak Hill Capital is investing in partnership with Hillman’s current management team, led by CEO Mick Hillman.
Tool manufacturers The Stanley Works and Black & Decker finally concluded their longtime discussions about the possibility of joining forces by announcing a merger in November 2009. Prior to that, the companies had discussed merging three times since the 1980s, according to Stanley CEO John F. Lundgren.