The pace of merger and acquisition (M&A) activity at the turn of a new year has important implications on the perceived health of the industry—and owners’ ability to seek a buyer for their business. In 2016, we tracked 51 different M&A transactions in which an LBM distributor was involved. This represents a decline from the 64 deals completed in 2015. However, with nearly a deal per week taking place in 2016, sizeable bets are being made that the next few years will continue to be strong for LBM companies. Thus, ample exit opportunities exist for owners of LBM businesses.
The honor for the largest deal of 2016 belongs to ABC Supply, with its somewhat surprising acquisition of L&W Supply. This deal, valued at $670 million, represented ABC’s first major foray outside of the roofing and exterior products segment.
The most active buyers, measured by number of companies acquired, were Gypsum Management and Supply with eight deals and Foundation Building Materials with seven. Beacon Roofing Supply completed five. ABC Supply, SRS Distribution, and US LBM each completed four acquisitions. Building Industry Partners and Riverhead Building Supply completed two acquisitions each and 17 other companies completed one acquisition each.
Nearly 400 combined locations were acquired in the 51 transactions. ABC Supply and Foundation Building Materials captured the lion’s share, with nearly 150 locations each. Monomoy Capital Partners, a PE fund, picked up 30 locations in two acquisitions, highlighting the continued interest of equity funds in the LBM space. Gypsum Management and Supply acquired two dozen locations in its acquisitions, followed by Beacon Roofing with 17 acquired locations. SRS Distribution and US LBM had roughly 10 locations each. All other locations were acquired by 18 companies that added one or a few locations each.
About half of 2016 deals were undertaken by a specialty dealer of some type. Drywall dealers accounted for 16 deals and roofing dealers undertook seven transactions. Lumberyards accounted for a third of 2016 buyers, with PE funds, manufacturers, timber companies, and others completing six deals.
A look at the types of sellers echoes the strong level of interest in specialty dealers. In 2016, 60% of targets acquired were specialty dealers, half of which were drywall distributors. Roofing and other exterior products made a strong showing and a few acquisitions of distributors of fencing, doors, and millwork were completed. Six manufacturers were acquired by LBM distributors in 2016, adding capabilities in decking, doors, millwork, and trusses.
Last year saw a slower pace of net location openings nationwide than in 2015. Some 46 new LBM locations were launched and 20 other locations were shuttered, for a net opening rate of 26 locations. In 2015, there were 96 openings and 57 closings, for a net opening of 39 locations. This could be seen as a rush to get new locations in place as early in the cycle as possible. All closings were by lumberyards, some of which had operated for well over 100 years. Among new openings, two-thirds were lumberyards, and the remaining third were specialty dealers, mainly drywall and roofing distributors.
Greenfield LBM expansions took place in 22 states last year, with California landing 15% of all new locations. Washington, Minnesota, and Texas grabbed roughly 10% each, followed closely by Indiana. The remaining 17 states all hosted one or two expansions each. Of 20 closures last year, three each took place in Illinois and Pennsylvania. California, Michigan, North Carolina, and Tennessee each saw two locations close. Six other states had one closure each.
There is a popular belief that active acquirers like to shutter locations after an acquisition. The statistics from 2016 tell a different story, though. Of the 20 LBM locations that closed, only two of them were closed by companies that are active acquirers. The remainder of closings were either the rationalization of locations within a company that had not been involved in a transaction or resulted from the failure of stand-alone businesses. Last year’s plant expansion activity showed that active buyers often also are engaged in creating greenfield operations. Nearly one out of four new expansions in 2016 was undertaken by serial acquirers like ABC Supply and SRS Distribution and other newer acquirers.
As a whole, the level of M&A activity and the opening of new locations are positive indicators for the LBM industry, with a high likelihood that M&A activity will continue at a beneficial pace.
