BMHC, as well, continues to emphasize ongoing acquisition as part of the company’s strategy to serve both high-volume regional production builders via its BMC Construction division and the greater concentration of custom, production, and repair and remodel contractors through BMC West. During a Feb. 7 conference call discussing BMHC’s 2005 annual results, CEO Rob Mellor pointed to both the Residential Carpentry acquisition (now doing business as RCI) and the acquisition of Houston-based pro dealer Home Lumber as key drivers in BMHC reaching $2.9 billion. “The acquisitions we made this past year truly took our business to the next level and enabled us to expand into new areas and further penetrate into existing markets by integrating additional core trades in our range of home building services,” Mellor said, adding that acquisitions will continue to be a significant component of BMHC’s future growth.
The Next Chicago Not lost in all of the action has been Atlanta-based retailer The Home Depot, which jumped into the pro dealer sector with the June 2005 purchase of Suwanee, Ga.–based Williams Bros. Lumber Co., a 44-unit supplier of lumber, building materials, and roofing that generated $440 million in 2005 sales. While rumors of additional pro dealer purchases in the Southeast continue to circulate with regularity, The Home Depot remains tight-lipped on its battle plan, save for the Jan. 10 announcement that it had acquired Orlando, Fla.–based plumbing, concrete, HVAC, and building materials distributor Hughes Supply (see “Keeping Up,” page 64).
Even with The Home Depot’s interest in Southeast market acquisitions, acquisitive pro dealers also are beginning to look at the market as ripe for consolidation, and the Southeast may be the next hot spot for M&A action à la Chicago, with a large group of financially solid and regional independent pro dealers catering to a booming housing market largely generated by national and regional production builders.
In January 2005, Tulsa, Okla.–based Hope Lumber and Supply announced it had purchased Kennesaw, Ga.–based pro dealer Leeds Building Products, a 10-unit supplier with 2004 gross sales of $131 million. Kent, Ohio–based Carter Lumber acquired three-unit Griggs Lumber of Point Harbor, N.C., on Jan. 11, 2006, as part of a strategy to push deeper into the Southeast builder market; BMHC has indicated its BMC Construction division will continue to look for acquisition opportunities in Florida; and Stock made its position in the market known with the July 26, 2005, purchase of Winter Haven, Fla.–based Adams Building Materials, a six-unit pro dealer with 2004 sales of $97.9 million, and is further entrenched after last month’s announcement it will buy $129 million, single-unit K&A Lumber Co. of Homestead, Fla.
“The Home Depot is certainly making inroads into our turf,” says Hope president and CEO Phil Alger. “But it is going to take awhile to see exactly how that is going to turn out for them. We’re all sitting here waiting to see what happens. There’s probably more consolidation coming—I know we are always looking. We have a proven track record, and we will continue to grow. The biggest thing we are watching is construction services and installed framing.” While Alger says Hope and the Leeds division are doing some install with doors and windows, he points to Stock, Builders FirstSource, and BMHC as the construction service leaders, and indicates that Hope will be keeping an eye on their progress.
“Certainly in all of our markets we are looking for opportunities to expand across into other trades and where we need to—particularly on the framing side—control more of the supply chain,” said BMC Construction CEO Mike Mahre on the Feb. 7 conference call. “The criteria for that expansion is management readiness and customer desire, and we are seeing both of those elements improving in Chicago, in the Mid-Atlantic, and we’re very strong in Florida, as well. Florida is an area where we have not crossed many other trades, but we will be doing that in the future.”
No Intent to Sell According to Beare, the Southeast and Southwest in general remain logical consolidation hot spots due to unparalleled production builder activity. “It’s a Sunbelt market phenomenon versus other regions, with the exception of some big one-of-a-kind metro markets like Chicago,” he says. “The construction and population demographics are there despite some speculation in markets like Phoenix and Vegas. People perceive the Southeast and Southwest to be steady growers.”
Beare also suggests that, despite the pressure of consolidation, independent-minded pros in the Southern states, Chicago, and elsewhere still have a compelling competitive advantage in their markets to become local market leaders by focusing on and excelling in higher-margin services including manufacturing and installation, a philosophy that acquiring dealer chains typically agree with.
“If you are already a big regional player, adding another yard is not going to do as much for you as being a larger service provider,” Beare says, pointing specifically to component manufacturing and installation as key services that regional independents can continue to leverage in their competitive favor. “I think the middle-market guy can still duke it out, especially when it comes to higher-margin services. Your region simply has to become your fortress where you mine the ground more fertilely and provide more service so you don’t get squeezed out.”
Hope Lumber, for one, is revamping its core IT systems and continuing to add component manufacturing and door shops to stay on an equal footing with its regional competition. “The best competitors have always been the local independents, and some of them are these tough, quiet guys that you don’t even know are there until you come into the market and start trying to do business,” Alger says. “So you’ve got to be right there with the best of them—you’ve got to produce, you’ve got to provide a product to the customer that he needs.”
