BIA Executive Insights
Analysis, strategy, and insights for decision makers in the building products industry.

June 2021
I'll Say It for the 20th Time:
Great Opportunities Await Those Who Excel
By Michael Collins, Managing Director, BIA

This is my 20th BIA Executive Insights in which I have shared my thoughts with you regarding the present state and future prospects for succession planning in construction supply. Below, you’ll see the 19 thought pieces that led off the 21 past issues. (Two other newsletters were promoting an event, so for those editions I have substituted a pair of columns that were contributed by my colleague, Craig Webb.) 

Looking over the pieces, I’d say my most important advice was to remain steady amid uncertain, often crazy times. Many dealers will echo writer Charles Dickens in calling conditions for dealers today both the best and worst of times, what with sky-high lumber prices adding to our revenues and rampant product shortages aggravating our distress.

In M&A, meanwhile, this has been the best seller’s market in at least 15 years—and perhaps the best ever. That situation, as well, can cause unsettled emotions.

I believe we have contributed to the call for steadiness since our launch in November 2018 by emphasizing the qualities that we believe lead to financial success now and a good succession later. We urged you to use both long- and short-term perspectives in your decision-making, as well as to set and track benchmarks that will improve your operations. We suggested you draw inspiration from great leaders and great companies, but at the same time we called on you to avoid being swept along by M&A mania if the trends run contrary to what’s best for your particular situation. 

Frustrating as conditions are today, they are driven by a strong, long-lasting demand for the products you sell. This bodes well for your business, but it won’t guarantee your success now or a successful outcome later. Hopefully, these articles help push the odds a bit more in your favor.

Here’s the collection:
  • Is This a Great Time to Sell? Perhaps. But First, Consider These 2 Factors … and 1 Opportunity May 2021

  • How Does Inflation Affect an M&A Deal? Here’s a Refresher Course You Might Need … Someday March 2021

  • Now Online: BIA’s M&A Discussion with Four of America’s Top LBM Execs March 2021

  • Two Recent Public Deals Show Current Events Don’t Launch the Process, but Can Help Close It (Craig Webb contribution) February 2021

  • Here’s an In-Depth Look at 2020’s Deals … and the Quick Start We’re Seeing in 2021 January 2021

  • Potential Buyers Are Watching What You’ll Do with Dollars Earned and Lessons Learned in ’20 December 2020

  • When a Share-the-Wealth Deal Makes Sense, Don’t Fret About Timing the Market September 2020

  • Why the Confusing Economic Data? In These Times, Bad and Good News Can Coexist July 2020

  • For Any V-Shaped Victory Over COVID, the “V” Will Refer to Vaccines June 2020

  • These Lessons from Leaders Can Help You Prosper During the Pandemic—and Beyond May 2020

  • When You Contemplate Your Business Today, Put on Bifocals March 2020

  • Consumers Are Holding Open the Window of Opportunity for You February 2020

  • Barring Political Speed Bumps, the Road Ahead Looks Good for Dealer Success in 2020 January 2020

  • Three Perspectives on LBM’s Dealmaking Prospects for 2020 … and Beyond December 2019

  • As You Enter Planning Season, Here’s How To Make Your Crystal Ball a Bit Less Cloudy November 2019 

  • Where’s the Economy Headed? Employ Multiple Statistics and Prospects to Get What Matters Most September 2019

  • Given What’s to Come, the Amount Spent on Today’s Technologies Is Just Table Stakes July 2019

  • How Much Should Katerra, Entekra, and Off-Site Components Makers Fit into M&A Plans? April 2019

  • The Market’s Pulse Is Stronger Than You Think March 2019

  • These Product Pricing Trends Will Help Shape Dealers’ Bottom Lines by Year End (Craig Webb contribution) November 2018

US LBM Accelerates from 20 to 70 in Texas;
Here's How Its Ops Are Spread Across the State
Before May, US LBM could claim no more than 20 locations in Texas, all the result of acquiring Parker's Building Supply back in 2015. Now that number has reached 70, thanks to a pair of acquisitions announced in the past six weeks.

On May 3, US LBM acquired Higginbotham Bros., which has 40 locations in the Lone Star State, plus a few more in Oklahoma. Higginbotham racked up $130.9 million in sales last year, a 49.1% gain from 2019 and one of the biggest jumps made by any company on Webb Analytics' Construction Supply 150.

Then, exactly a month later, US LBM revealed it had purchased J.P. Hart Lumber, which has eight lumberyards and two component plants. Hart's revenue isn't known, but it's believed to be well north of $400 million.

The map above shows the three divisions' geographic mix, with Parker's (yellow pins) based mainly in East and South Texas, J.P. Hart (green) along the populous I-35 corridor, and Higginbotham (red) primarily in West Texas.

US LBM, BFS Deals Were Just a Part of
the Recent M&A Action in Construction Supply
While the biggest headlines in construction supply M&A over the past month and a half involved acquisitions by US LBM and Builders FirstSource, they were only two chapters of a bigger story. Webb Analytics spotted six other deals involving 22 branches, as well as nine greenfield openings.

In other action over the past month:

  • GMS bought Westside Building Material, a drywall specialist with nine locations in California and one in Nevada.

  • TAL Holdings bought Badger Building Center, which has operations in Bonners Ferry, Post Falls, and Sagle, ID, as well as in Kalispell, MT.

  • SRS Distribution purchased Arrowhead Building Supply, which has four locations in Missouri and one in Arkansas.

  • The owner of a local granite shop bought Latvala Lumber in Grand Rapids, MN, from the Latvala family.

  • SRS's Heritage Landscape Supply Group acquired Beehive Brick & Building, with operations in South Salt Lake and Sandy, UT. Heritage also opened six new locations in the Houston, San Antonio, and Austin markets.

  • McCoy's Building Supply opened a new branch in Liberty Hill, TX.

  • Roofing and exteriors specialist ABC Supply opened a new location in Port St. Lucie, FL.

  • Westlake Ace Hardware opened a new store in St. Peters, MO, in May. The location formerly was the site of a True Value Hardware Store that closed Nov. 30.

  • Panther Valley Lumber & Home Center in Lansford, PA, has closed.

All that action might have gotten more attention, had it not been for the moves made by US LBM and BFS.

In May, US LBM announced it had acquired American Construction Source, which operates more than 70 locations from the Midwest to the Pacific, including the first operations US LBM will have in Colorado and Washington State. ACS recorded $703.2 million in sales last year, according to Webb Analytics' Construction Supply 150.

Also in May, US LBM absorbed Higginbotham Bros., a 40-location, $131 million operation that's primarily in Texas with a few outposts in Oklahoma. Those two deals alone enabled US LBM to grow by more than one-third to nearly 400 locations nationwide. That was followed up in June with the J.P. Hart Lumber acquisition--just 10 locations, but a strong collection of facilities in the state's four biggest markets.

BFS' purchases weren't as extensive, but they were noteworthy. First, BFS moved into the Detroit market in May by acquiring John's Lumber, which has yards in Clinton Township and Shelby Township, MI, and had sales of $49 million over the past 12 months.

Then came a much bigger deal, the acquisition of the Alliance Lumber group of companies in Phoenix, one of America's hottest markets. Alliance had sales of $330 million over the 12-month period ending in April. BFS paid $400 million to nab the company.

The BFS and US LBM deals also are notable for the relative recency of the companies and how both of the selling companies had roots in Stock Building Supply. Cornerstone Building Alliance bought the Alliance operations in September 2012. It was intended to be the first major purchase of an investment group that featured two former Stock Building Supply executives, Fenton Hord and Steve Short.

ACS was even younger, launched in September 2018 by Angeles Equity Partners and Clearlake Capital Group. ACS' CEO was James Drexinger, a former SVP at Stock. ACS started in September 2018 by buying Meek's Lumber and then going on to buy dealers in Minnesota, Wisconsin, Colorado, northern California, Arkansas, and Washington State.
Time will tell whether ACS will buy LBM operations again.

While all this was happening, a number of dealers were putting themselves up for sale, typically using web services to advertise themselves:

  • Walker Lumber in Minong, WI, is available. A $600,000 payment buys the land, equipment, and store fixtures. The inventory, worth $670,000, is being sold separately. Contact [email protected].

  • An unnamed hardware store and lumberyard in Texas' Hill Country with $1.3 million in annual gross revenue is on sale for $1.45 million. The price includes inventory, real estate, and fixtures.

  • In Augusta, ME, an unnamed lumberyard with $2.7 million in gross revenue is for sale for $1.4 million. Neither real estate nor inventory are included in the sale price.

  • Northwest Pennsylvania is home to a lumberyard with $2.7 million in annual gross revenue that's for sale for $1.9 million. That price includes $675,000 in inventory, $300,000 in equipment, and $925,000 worth of real estate.

Is there something that you would like to see covered in a future issue
of BIA Executive Insights? Write to us with your request.
What Killed Katerra? Here's an Insider's View
Enough stories regarding Katerra have emerged already to make clear that lots of things contributed to its plummet into Chapter 11 bankruptcy-law protection from creditors. One of the best comes from Brian Potter, who spent several years in middle management at the company and now writes a column on Substack called Construction Physics. In a June 9 essay, he writes:

Anyone looking for them can find plenty of horror stories about Katerra--projects that were delayed and over budget, mistakes that were made when setting up the factories, outrageous levels of spending, etc. But every large company, especially one that is rapidly growing, has horror stories. … 

Ultimately, I think Katerra’s struggles can be traced to a lack of product-market fit. The company scaled up massively prior to having a product people wanted to buy, and it spent several fitful years (and painful pivots) trying to find one. Katerra started out heavily [cross-laminated timber] focused, shifted more toward light framed wood, took a quick detour to cold formed steel, then went back to wood. … Each change stretched out timelines, and consumed massive amounts of resources in capital expenditures and design budgets. …

In some ways, this is a boring answer--the most likely thing to kill a startup, killed a startup. A pivot is hard enough at a small startup. It’s far harder at one that employs thousands of people, and has massive capital investments in building physical products.

Judging by comments tacked onto various news posts, the industry appears to be regarding Katerra’s downfall with a mix of schadenfreude and regret. For every criticism of Katerra as arrogant and a failure at trying to boil the ocean, there is acknowledgement that some of what Katerra hoped to accomplish was worth pursuing. Indeed, Katerra was an inspiration to many, even those who saw the ship sink while they were still aboard.

Our industry has emerged wiser from the experience. Let’s hope the result is better construction.

We Can Answer Your Most Pressing M&A Questions

* How do the most active buyers in today’s market value my company?
* What parts of the business should I change to improve its valuation?
* When is the right time to sell?

These are questions that are commonly asked by the owners of building products manufacturers and distributors. Our work in selling and raising capital for companies puts us in a unique position to help answer these important questions. Regardless of when you might decide to approach the market, please contact me to have a confidential discussion about your company and ways to maximize its value for the owners. 

Michael Collins
Work 312-854-8036
Cell 312-282-5462