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

November 2021
To Sell Yourself Better, Think More Like a Buyer
By Michael Collins, Managing Director, BIA

Unless you're the type who wears only tailor-made suits and has a personal chef to cook your meals, you know that hardly anything you acquire is custom-made just for you. A purchase is a bet that what you see in an item will fulfill your desires. Benefits that the seller touts don't matter, compared with your personal list of needs and wants. The more of your boxes that item ticks, the more likely you'll buy it.

I bring this up because sellers should remember that, even in a seller's market, buyers make purchases based on what they feel is most important, not what the seller values. And over the years, I've found that buyers are remarkably good at knowing what they want.

They judge prospects based on the risk of maintaining profitability selling your products in your market using your people. They factor in potential force multipliers, such as whether you peddle the same brands only in adjacent territories. They see potential challenges: Will I keep the seller's suppliers? What about its staff? Do the product lines that the seller stocks but I don't represent a growth opportunity or a financial millstone? And what about potential outside game-changers, such as shifts in tax policy?

No matter how you rate your company's appeal, the most likely buyer is the one who sees the lowest risk in making the purchase, based on their perception of what profit they'll achieve.

You might tout outsized future growth possibilities. Sometimes they make sense; a new highway coming through or a factory getting built in your town suggests the buyer will benefit in ways that you could not. But if you're basing your growth claims on introducing products you don't currently sell or services you don't currently offer, a potential buyer might ask why you haven't already offered that product or launched that service. Buyers typically don't pay for unfulfilled ideas--they want a solid expectation that they'll profit from what you're doing now.

Selling a construction supply company demands you take off your rose-colored glasses when you look at your yard. View it as it is, not as you think it could be. List all the good things you're doing that have a good chance of generating profits for a new owner. Those are likely to be what the prospect will value most.
Coming Nov. 14: My Webinar with Execs from 3
of the Nation's Most Acquisitive LBM Firms
Please join me as I lead a panel of LBM executives who'll be discussing the major factors influencing today and tomorrow’s merger and acquisition activity. The panel will feature:  
* LT Gibson, CEO, US LBM
* Steve Swinney, CEO, Kodiak Building Partners
* Robert Debs, Vice President, Nation’s Best Holdings

REGISTER NOW for this event. It'll take place at noon ET Wednesday, Nov. 10.

Can't attend? Register anyway and you'll receive the webinar recording after the event. It's sponsored by Buildxact.
Construction supply companies involved in deals (blue dots), greenfield openings (green) or closures (red), YTD 2021. Not shown: One deal and one opening in Hawaii. Source: Webb Analytics
There Are Far Fewer Megadeals in 2021's M&A Picture, But Many More Transactions
By Craig Webb, President, Webb Analytics

Construction supply enters the final two months of 2021 with a scoreboard that, compared with this same time last year, looks far busier. Nevertheless, dealmakers have a long way to go if they hope to match the number of locations affected for all 12 months of 2020.

Through Nov. 2, there have been 101 transactions involving 398 locations. That's well ahead of the 53 deals and 169 locations completed by this same point in 2021. But the final weeks of last year saw another 310 outlets change hands in just 18 transactions. And those numbers don't count the roughly 162 BMC branches that merged into Builders FirstSource.

Here's one way to show the difference from 2020: This year, the average acquisition has involved just under four locations. For all 2020, the average number of locations bought per acquisition was 6.7. And that number jumps to 9.6 if you include the BFS-BMC combination.

Among the most notable deals since late September, SRS Distribution grew markedly in Michigan by acquiring Wimsatt Building Materials, which has seven roofing/siding specialty stores in the Wolverine State plus one across the border in Toledo, OH. It also bought Marvic Supply, which has six branches in Pennsylvania and one in New Jersey. And the company's J B Wholesale Roofing unit opened a store in Murrieta, CA.

In the distribution space, intriguing news from Huttig prompted speculation that the publicly traded distributor could be sold. The company announced Oct. 13 it had "initiated a process to evaluate potential strategic alternatives to maximize shareholder value." Huttig declined to comment further, but HBS Dealer noted that Mill Road Capital, one of the company’s largest shareholders, made multiple offers to acquire the company last year.

The deals pace tends to obscure how busy some companies have been at creating new locations. So far, Webb Analytics has heard of 100 greenfield openings. That's way ahead of the 60 openings recorded through Nov. 2 last year.

Closures, meanwhile, are down notably--just nine this year vs. 28 at this point in 2021--but news about stores shutting down often take far longer to get noticed than do green shoots and deals.

Here's what else has happened recently:

* Beacon Building Products acquired exterior specialist Midway Wholesale, which has 10 branches in Kansas, Missouri, and Nebraska. Also, Beacon opened greenfield stores in Houston, TX, and North Port, FL.

* US LBM bought Arrowhead Stairs and Trim, a huge millwork operation serving the Dallas-Fort Worth Metroplex. It also acquired BuilderUp, a lumberyard and truss manufacturer with operations in Waldorf and Owings, MD

* Talbert Building Supply of Roxboro, NC, bought Poindexter Lumber of Clemmons, NC, a town near Winston-Salem.

* Genesee Lumber acquired Smith Lumber & Hardware of Lakeville, NY.

* Mill Creek Lumber & Supply bought Fox Building Supply, which has branches in Oklahoma City and in Altus, OK.

* Kodiak Building Partners added another Pacific Northwest dealer, this time going to the Olympic Peninsula to acquire Carl's Building Supply of Port Hadlock, WA.

* Nation's Best Holdings moved into the Chicago area by acquiring the three-branch Crafty Beaver Home Centers. Nation's Best also took over Gilmer (TX) Lumber and Howe, OK-based Ron's Lumber & Home Center.

* Jim Carroll, the longtime manager of Brownsboro Hardware, bought the company's two stores in Louisville and Prospect, KY, from the store's founders.

* New South Construction Supply made its first move into Florida--and potentially the Caribbean--with its acquisition of Jacksonville-based Increte of North Florida.

* L&W Supply, the drywall specialty division of ABC Supply, opened a branch in New Castle, DE.

* SRS' Heritage Landscape Supply Group moved into Northwest Arkansas via a greenfield store in Springdale. It also acquired Wirtz and Daughters, a landscaping company with facilities in Joppa and White Marsh, MD.

* Pleasants Hardware, a Richmond, VA-area, subsidiary of Norfolk-based Taylor's Do it Center, opened a new store in Quinton, VA. Taylor's plans to open another store of its own in Gloucester, VA, before year-end.

* Gillman's Home Center plans to open a store in Hartford City, IN, by early December.

* St. Charles Hardware opened in St. Charles, IL, while Medley's Carlisle Hardware opened in Sullivan, IN.

* Floor & Decor has opened six new stores since mid-September, pushing it well above the 150 mark. The branches are in Bohemia, NY; Naples, FL; Waltham, MA; Oxnard, CA; Dorchester, MA; and Tacoma, WA.

* Golden, CO-based Meyer Hardware closed.
If You Track Building Permits, Check This Out
The Census Bureau is making life easier for everyone in LBM who relies on building permit data to help them track construction's current pace and spot potential opportunities. The bureau recently rolled out this free online tool that lets you create customized charts showing permit activity.

The tool makes it possible to look at the national permitting scene in multiple ways. You can break down total permitting into single- or multifamily categories, both in terms of total permits or valuations. The data goes from 1990 to year-to-date and can be viewed as annual or monthly figures. You also can pick the states, counties, or communities that you want to see. For instance, the map above shows permits for selected Southern states.

The only drawback right now is that the visual and underlying spreadsheet results can be viewed and copied, but the data cannot yet be downloaded automatically. The Census Bureau hopes to provide that service soon.
Does the Place You're Buying Need a Refresh? Consider These Up-to-Date Store Design Ideas
It's not unusual for prospective buyers of construction supply companies to find themselves evaluating facilities where the decor has received much less TLC than the profit statement. If your new acquisition could use a new look, this might be a good time to go beyond simply repainting the place. Consider making bigger moves, perhaps by drawing inspiration from the new store concepts being promoted to Do it Best members.

The changes, unveiled about a month ago, include a wider central "power" aisle, specially demarcated store departments, and end caps with vignettes that inspire the customer, not just promote something on sale.

"The next generation of customers want a story behind their purchases," Cherie Jacobs, Do it Best's store development manager, said in an interview. "It's more about creating an unexpected experience. ... By creating these departments, you're stopping them in their tracks to think about you."

Some changes are overt, such as the use of icons and grid-like ceiling "clouds" to guide the shopper through the store. Others are subtle: The Do it Best logo is a bit squarer and now has rounded corners, both echos of how apps look on a smartphone.

Outside, the red color that used to dominate the building now has been reduced to an awning; gray is now the primary color. Large icons on the exterior wall makes it easy for drivers to see major product categories offered.

This YouTube video of how the redesign transformed Vassar (MI) Building Center will show more. The owner says he used to know eight out of every 10 customers who walked in. Now so many new customers have arrived that he now knows just three out of 10.
Two Thoughtful Essays on Mission Statements
A pair of recent commentaries--one generic and one LBM-specific--provide great food for thought regarding your company's mission statement. What you say will tell a lot about you, both for good and for ill.

First the bad: The Economist noted that WeWork's first, spectacularly failed IPO attempt said its mission was "to elevate the world's consciousness." Now WeWork is back before investors, as part of a Special Purpose Acquisition Company called BowX, and this time its mission is said "to create environments and companies come together and do their best work."

"No mission creep this time," The Economist wrote.

Meanwhile, Kevin Hancock (pictured), the much-honored leader of Maine's Hancock Lumber, also emphasized the value of a mission statement, but he has a different notion than many others regarding what should be in it. He wrote: "For me, the first mission of our company is to help everyone feel trusted, respected, safe, valued, and heard--exactly as you are. No change is necessary for you to be amazing.

"Manufacturing lumber is important to our company, but it’s not the mission," Hancock continued. "Logistics are also important, but they are not the core mission either.

"Sharing leadership broadly, dispersing power to everyone, and respecting all voices—that’s the mission. Work should be meaningful for the people who do it."
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