Analysis, strategy, and insights for decision makers in the building products industry.
January 2019
|
|
Looking Back, Looking Ahead
|
|
By Michael Collins, Managing Director, BIA
January was named after the Roman god Janus, who was famous for having one more than the normal number of faces. Just as he looked at the past and the present, it's appropriate that in January we do the same in the building materials industry. We collaborate with Craig Webb of
Webb Analytics
in compiling M&A information for the LBM industry. Here is what we learned, presented both in words and in the map below.
Last year, the LBM industry saw roughly 300 locations acquired in 73 separate transactions.
SRS Distribution
emerged as the most active buyer of the year, in terms of the number of locations purchased. We have to pick
American Construction Supply
as the buyer of the year, though, for tallying an impressive four acquisitions that encompassed 67 branch locations and included
Meek’s Lumber
.
Kodiak Building Partners
, too, had a notable year as it returned to the acquisition table with five acquisitions in 2018.
Lumber played an important role in acquisition decisions in 2018, as our count shows 126 of the 297 acquired locations are primarily dedicated to lumber and building materials. Specialty dealers accounted for just over a fourth of all locations acquired, highlighting acquirers’ desire to add higher margin products to their offering. By providing a large number of products in a specialized category, such as windows, doors, plumbing or electrical supplies, specialty distributors are able to command higher margins. There is less risk of a customer going to a broad lines distributor for just one product when that broad distributor may not carry many of the products that customer needs.
Now for a look ahead. Discussions of an impending slowdown in single-family construction are prevalent. Some industry participants’ certainty regarding a slowdown seems to vary inversely with the existence of any evidence that it is happening. Many industry participants predict a slowdown, despite having great months and enjoying strong pipelines.
When you talk to suppliers in the next market and the next one, it begins to paint a picture of whole regions doing well. Many companies, particularly in the South, experienced lackluster sales in November and December. That was largely due to having gotten more rain than expected. When builders are delayed by rain around the holidays, the temptation to “get back at it after the holiday” can create significant bubbles in suppliers’ revenues. The good news is that all of those home projects have been approved and will happen, it’s just a matter of Q4 2018 revenue becoming Q1 2019 revenue.
Interest in acquisitions remains strong, although buyers are becoming more selective. We see buyers as focusing on acquiring locations that are nearer to their existing locations, indicating somewhat less desire to plow into new territories. Other buyers are focused on businesses that are either pure manufacturers or that have a strong element of millwork, truss, or other manufacturing to them. While the serial acquirers remain active, 2018 saw 26 deals completed by buyers that completed only one acquisition during the year. This is why it’s important to include that close competitor whose service map lies alongside or even is entangled with your own. They may acquire only one company in their history, but that company may be yours.
We’ll feature additional analyses of M&A activity in future issues. Here’s wishing everyone a prosperous and successful 2019.
|
|
Use This Scorecard as a Benchmark
to Gauge How You Did vs. the Big Companies
|
|
As we head into the next earnings season, here's a side-by-side recap of where things stand for the major public companies in LBM. We kept US LBM in the chart because we're still waiting for third-quarter data to be posted in an updated S-1 registration filing, a precursor to making an initial public offering. The wait could be in vain, though, as US LBM may have decided to postpone any IPO indefinitely.
Write to us
if you'd like a bigger version of this that you can download and print.
|
|
These
Worrisome Times Are Revealing
Which Dealers Have the Heart of a Lion
|
|
By Craig Webb
President, Webb Analytics
I once spent a couple weeks on safari in Botswana, photographing the wildlife at camps that were hundreds of miles from the nearest telephone line. Elephants would nosh on greenery next to the camp kitchen and monkeys played on our tent roof. As we jolted along in Land Rovers, I noticed a consistent trend: delicate animals like antelope and lechwe would bolt whenever we got within 50 yards, while lions wouldn’t care if you came within a car length of them.
I see this Law of the Jungle playing out now in our economy, as herds of investors bolt from the stock market over worries of a slowdown or recession. Similarly, in the LBM community you can hear lots of nervous talk among small independents about the possibility that sales will go South. I devoted the December edition of my newsletter to
things dealers should do if conditions worsen
.
Meanwhile, the lions of LBM appear much less worried. In fact, they’re getting even more active.
BMC
has resumed actively looking to buy operations.
Builders FirstSource
plans to build several truss and panel plants. And
Beacon Roofing Supply
has
set profit margin goals
that are several hundred basis points above its recent performance, and it’s planning to ramp up the opening of greenfield locations.
Well-funded private operations are busy, too. For instance, fresh off spending $35 million on a new facility in Torrance, Calif,
Ganahl Lumber
moved its Costa Mesa branch to a sparkling new store.
Executive at these companies keep track of the same headlines that you follow, but what might seem like a threat to your business often strikes them as an opportunity. Rather than merely float on the ups and downs of the lumber market, they have embraced lean operations techniques to cut operating costs and generate higher profits at all times. They are changing their pay structures to reward drivers for both efficiency and safety. And they have studied ProBuild’s collapse for lessons about the importance of building a corporate culture.
Lechwe can’t ever become lions, but you are neither of those beasts. Your can build your LBM operation into something that stops running scared every time you sniff trouble in the distance. Deciding what kind of animal you want to become is the first step.
|
|
These 3 Charts Speak Volumes About Construction’s Long-Term Future
|
|
Just as a river can slowly carve out a canyon, gradual population flows can lead to significant changes in both the housing business and politics. These three recently produced charts—two looking to the past and one projecting into the future—all reveal important implications for construction.
|
|
Less Movement
Americans moved only half as often as they did just after World War II, the Census Bureau’s latest figures on the subject indicate. Meanwhile, the total number of annual moves has declined by at least one-fifth since the early 1980s even though the overall population has grown by one-third.
Fewer moves means more people are staying put for longer periods. That suggests demand for products used in repair and replacement jobs will grow faster than the need to make products for new construction.
At the same time, this lack of moving curbs the potential number of remodeling projects. According to research by the National Association of Home Builders, people who have just moved into a house spend 50% to 100% more on alterations and repairs that first year than do non-moving homeowners.
|
|
Suburban Growth
Of those who do move, where do they go? The second chart shows a consistent net migration into metro areas (red line) since at least 1986—but not into the principal cities (blue line). This means the suburbs remain where the growth is, despite all the talk about millennials’ love for city life. Meanwhile, rural areas (green line) are only treading water, getting about as many new people as those who leave.
|
|
Political Implications
But that doesn’t mean rural areas should be forgotten. In fact, in a political sense, they are gaining power. This chart, created by
The Washington Post
from data provided by the University of Virginia, suggests that just eight states will have half of all U.S. residents by 2040 and seven more states will contribute another 20%.
From a manufacturing point of view, these 15 states are where the growth will be. And in the House of Representatives, whose 435 members are divided among the 50 states based on population, the big states will account for an even bigger share of the total membership.
On the other hand, the Senate will remain an institution in which each state gets two members regardless of population. This means in effect that the 35 smaller states will provide 70 of the 100 senators. That’s enough votes to control that chamber. And because those states are more rural, with older and more conservative populations and more reliance on small business, those states will play an outsize role in how government regulates business and how the federal budget gets spent.
|
|
Is there something that you would like to see covered in a future issue
of BIA Executive Insights?
Write to us
with your request.
|
|
Recent Dealer and Distributor Transactions
|
|
Homewood Holdings
acquired
Eagle Creek Siding
and
Mud Bay Manufacturing,
based in the Seattle area.
BMC
bought
Barefoot & Co.
, an installation specialist located in Charlotte, N.C.
TAL Holdings
expanded its portfolio of dealers in the Pacific Northwest by taking in
Gerretsen Building Supply
, Roseburg, Ore.
Seven D Wholesale
, a Pennsylvania-based distributor, bought
Fairway Building Products
.
Flagship Forest Products
, also a distributor, bought
Halpin Lumber
of Brighton, Mass.
Employee-owned
Your Building Centers
, based in Altoona, Pa., absorbed
Berlin (Pa.) Lumber.
SRS Distribution
bought
Bill Wahl Supply
, a specialty dealer in Blackwood and Vineland, N.J.
Beartooth Lumber
,
Absarokee, Mont., is for sale. It claims annual revenue of $700,000. Its asking price of $425,000 includes the store's real estate and inventory.
An unnamed commercial building products dealer in Rensselaer County, N.Y., has put itself up for sale. The company says its gross annual revenue tops $12.5 million. It's seeking $4 million.
|
|
Your Employees May Dislike Work Teams
More Than You Think
|
|
New research on workers’ preferred benefits may lead you to reconsider judging employees based on their team’s performance. Many people, particularly as they get older, are willing to give up a pay raise if they can work by themselves or—if they are on a team—get reviewed on their solo accomplishments.
While many firms find that teams of workers with complementary skills can be more productive than people working alone, “there is little evidence about workers’ preferences for teamwork,” say the five authors of a
paper
published last fall by the
National Bureau of Economic Research
.
“We estimate that working by oneself is an equivalent to an 8.4% wage increase relative to working on a team and being evaluated based on the performance of a team,” the authors wrote. “However, we find that most of the value of working by oneself arises from a desire to be evaluated based on one’s own performance rather than the team’s performance. Relative to evaluation as a team, evaluation based on one’s own performance—but still working on a team—is equivalent to a 6.4% wage increase. As long as evaluation for teamwork is based on one’s own performance, working alone is only valued at 2.0% of the wage.”
The chart above shows how respondents to a nationwide survey answered when asked if they’d prefer getting a particular benefit rather than part of a pay raise. The higher the number, the greater the willingness.
The results, based on surveys of 18,150 workers conducted from July 2015 to February 2016, indicates some things you probably already suspected. For instance, it’s probably no surprise that workers aged 62 or more value jobs with moderate physical activity or just sitting more than all others, particularly compared with 25- to 34-year-olds. Moving from a job requiring heavy physical activity to one in which the person is mostly sitting “is equivalent to a 12.0% wage increase while ‘moderate physical activity’ is valued at 14.9% of the wage,” the authors said.
All age groups see time off as a good substitute for pay. Ten days of paid time off is equivalent to a 16.4% wage increase,. Twenty days of paid time off is equivalent, on average, to a 23.0% wage increase.”
Workers’ attitudes about being independent also shows in the results regarding how workers value the ability to set their own schedule. “We estimate that setting one’s own schedule is equivalent to a 9.0% wage increase,” with women putting an even higher value on the option, the authors wrote.
Low-wage workers value job amenities a bit less than respondents in highest wage jobs. From worst job to best, the change is valued at 47.9% for lowest-wage workers and 61.4% for highest-wage workers.
“Working conditions become increasingly important throughout the lifecycle …[and] both job amenities and preferences for job amenities rise throughout the wage distribution,” the authors wrote.
“Our results suggest that amenities play a critical role in job choices. While we limit our attention to only a subset of workplace amenities, we nevertheless estimate that these characteristics compose an important component of compensation, suggesting a first-order role for non-wage amenities for understanding the level and structure of wages in the U.S. labor market.”
|
|
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
|
|
|
|
|
|
|
