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

November 2019
As You Enter Planning Season, Here's How
To Make Your Crystal Ball a Bit Less Cloudy
By Michael Collins, Managing Director, BIA
This time of year marks a change at most construction supply companies as notable as the turning of the leaves. Construction’s and remodeling’s final rush to Thanksgiving and the year-end holidays occurs at the same time dealers typically are launching annual reviews, planning, and budgeting for the next 12 months. I often get called at this time by companies with buying and selling on their minds to advise on those plans. What, they ask will the M&A climate be like one, three, or five years out?

My response: Try to ignore most of the uncertainties swirling about, and rely instead on the most solid trends to buttress your forecasts.

Let’s start with politics. Nobody knows who will win the next election, so there’s no use fixating over that. But it is a far more likely that neither the Democrats nor the Republicans will win by a landslide. Thus, you can expect continued stalemates between the parties over just about every major initiative that comes before Congress. 

Looking longer-term politically, note forecasts that by the year 2040, 50% of all Americans will live in just eight states and another 20% will live in a second eight. That means 16 states will have 70% of the population while the remaining 34 states will be home to just 30%.

Because seats in the House of Representatives are apportioned based on population, this shift means growing states like California, Texas, and Florida will gain even more members, and representatives all over increasingly will tilt toward urban concerns. But on the Senate side, the picture will be much different. Because the Constitution gives every state two senators no matter the state’s population, the result will be that the 34 states with just 30% of all Americans will control 68% of the chamber’s 100 seats. These states are likely to skew more rural, more conservative, and older than the high-population areas. Thus, senators from those states are likely to push different priorities, and their voters could put a different party in control than the one running the House. The end result? Policy conflicts will continue.

Now look at demographics. We have reached the point where most millennials are at the home-buying and child-rearing age. That implies ever-increasing demand for starter homes as well as buying fixer-upper places. Meanwhile, baby boomers continually move toward retirement and toward big decisions about whether to retire to a new neighborhood or age in place. Either way, senior-oriented housing choices and remodeling that promotes universal design look like solid bets.

And don’t forget diversity. According to the Pew Research center, the most common age for white Americans is 58 years old. For Hispanics, it’s 11, and for Asian-Americans it’s 29. Cultural differences between groups are strong enough to merit asking yourself whether your product lineup (or targeted acquisition) meets those group’s desires.

I’m slightly less certain about the economy in 2021 or ‘22, but the consensus opinion of most economists is that we’ll see a slowdown next year and not a recession—at least in the official sense of the term, in which the economy shrinks for two consecutive quarters. Lumber prices look set to remain stable too. Your best bet is to pencil in the same revenue total for 2020 that you accomplished this year, and then ask yourself: How do I squeeze more profits out of the same income?

Strategists sometimes divide information into multiple boxes, based not only on what we know and don’t know, but also whether we are aware the information even exists. Some things we know intimately: How much we were paid for a roof’s worth of shingles, or how much I pay my driver to deliver those goods. Others are things we don’t know but could if we tried, such as the insights we could glean from our ERP system if we bothered to dive into its database.

There also are the things we were totally unaware, the so-called “unknown unknowns.” These usually are the real shockers, exemplified by the shock waves caused over a decade ago when we discovered toxic mortgages. And finally there are the “known unknowns”—things we want to know but can’t be sure about. Too often, when confronted with such a question (“How will our trade war with China end?”) we give up.

My focus today has been on the known unknowns. Some are less murky than others, and thus some outcomes are more likely to produce the outcome we predict. Focus on those, and your planning could become a little less nerve-wracking.
What Sets Great LBM Operations Apart? It's Their Relentless Pursuit of the Best People
By Craig Webb
President, Webb Analytics
Three notable LBM executives came together recently to talk about recruiting, selecting, and training top talent. Their advice basically was this: Find the best people and then give them the personal tools they need to rise to the occasion in a culture that helps them succeed.

"We know the number 1 driver of success in our business is the people," Matt Ogden, principal at Building Industry Partners, said Oct. 9 during the ProDealer Summit. "If I believe I have an A+ leader who my interests are aligned with ... I have great confidence. If I don't, I'll keep awake at night,

"An A+ leader attracts A+ executives," Ogden added during the session, held in Colorado Springs, CO. "An A player won't work for a C player on a sustainable basis. ... I start with A's, and I expect my team to bring in A's."

Steve Swinney, CEO of Kodiak Building Products, said he believes success comes through creating the right sort of atmosphere and then giving high-potential people a chance to succeed. "The collaborative culture that we try to cultivate matters," he said. "We all try to go home a little smarter than the day before."

Building the right culture mattered a lot to David Flitman when he took over as president and CEO of BMC Stock Holdings about a year after the two giant operations merged. He noted that what emerged from the uniting of BMC and Stock Building Supply was a company with 9,000 people serving 40 markets out of yards in 19 states. "I can't influence all those markets [personally], but I can set the culture," Flitman said. For instance, said he has pushed the idea that BMC is a company on the leading edge within the LBM industry.

Flitman listed five qualities that he looks for in a leader: The ability to align an organization with company values, ability to empower the organization, servant leadership, collaboration, and executive. To help those goals sink in, BMC has created a leadership academy for its management trainees that is taught by company executives.

Jim Robisch of The Farnsworth Group echoed Flitman regarding what type of team is needed to excel. "You have to have a maniacal approach to execution," he said. What's actually in the plan will vary between dealers, but regardless of the route taken, it's crucial to find people with the skills needed to execute that plan.

Much of what the group said put a premium on personal contact; Flitman said just one CEO meeting a year with an employee can result in a marked increase in that employee's satisfaction scores. Swinney also promoted such outreach, in part because it leads to moments in which a CEO will come to realize an employee's potential and then set that person on a path to leadership.

One result of all this should be the elimination of the word "retention" from the CEO's vocabulary, our organization has in repanel moderator Tony Misura said. The corporate recruitment executive stressed that retention isn't something to pursue on its own, but rather is the natural result of good hiring, developing and promoting practices.

Looking at the audience of C-suite executives, Misura said: "The power that your organization has in recruiting talent is right between your ears."
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There's Been No Letdown in LBM M&A Activity; We're Seeing Deals Galore Across Many Sectors
We count just under 300 construction supply facilities that were involved in acquisitions, greenfield openings, or closures so far this year. That's slightly ahead of last year's torrid pace. Of those locations, 174 were involved in M&A deals, 92 opened their doors for the first time, and 30 facilities closed.

More than 75 ownership changes have taken place just since July 4. The biggest single transaction saw SRS Distribution acquire 21-branch Travis Roofing Supply . SRS also bought the six-unit Roofers Supply stores of Utah; Slover Roofing Supply , a two-unit operation in Texas, and Schultz Roofing of St. Joseph, MI.

Here are the other most notable deals since mid-summer:

SRS' Heritage Landscaping Supply Group bought Normac , which has eight facilities in California.

A new investor came on the scene when Fulcrum Building Group of Southern California came to life and purchased a pair of dealers on the Gulf Coast: Navarre (FL) Lumber and South Bay Lumber of Santa Rosa Beach, FL. Fulcrum says it's looking to increase its holdings.

BMC expanded in the Sacramento area by acquiring Heritage One Door & Hardware of North Highlands, CA. Back east, Timberline Enterprises bought Braintree (MA) Lumber while a millwork specialist. Randall Brothers , took in Marietta, GA-based PMC Building Materials.

Two divisions of Building Industry Partner s did deals. Homewood Holdings acquired Total Trim Construction of Auburn, CA, and U.S. Fence Solutions bought Western Access Controls of Northglenn, CO.

We saw two instances of co-location: L&W Supply and its parent, ABC Supply , began operating out of the same address in Boise, ID, while Universal Supply opened a new facility in Kimberton, PA, in space that had been fully occupied by fellow US LBM company Shelly's.

ABC Supply also opened stores in Stockton, CA; Auburn, NY; Sharonville, OH; and La Mirada, CA. L&W Supply did the same in Modesto, CA; Green Bay, WI; and Fishersville, VA. Meanwhile, gypsum specialist GMS said its Cowtown Materials unit set up shop in Wichita Falls, TX; while its New England Gypsum branch entered Manchester, NH. GMS also went north to Canada and bought an Ontario firm, Rigney Building Supplies .

After announcing four greenfield openings on July 1, SRS revealed more between Aug. 5 and Sept. 20. Those new stores are in Colorado Springs, CO; Indianapolis; Dayton, OH; Fayetteville, NC; Saxonburg, PA; and Sun Valley, CA.

Foundation Building Materials expanded in Texas by opening facilities in Corpus Christi, New Braunfels, and Lewisville.

Other greenfield openings by bigger dealers included: McCoy's Building Supply in Bay City, TX; Curtis Lumber in Richmondville and Sidney, NY; Kuiken Brothers in Newark, NJ; and Arrowhead Building Supply in St. Peters, MO. Meanwhile, Eldredge Lumber said it plans to open a store in Sanford, ME, by year-end.

There were several smaller dealers that launched: Minardi Lumber, Hermatnown, MN; Bazooka Lumber and Livestock , Thermopolis, WY; JR's Building Supplies , Texarkana, TX; LumBros. Building Solutions in Detroit Lakes, MN; and Local Lumber and Supply , Williamson, WV
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Three stores have posted notices saying they're up for sale. One is Walker Lumber Co. and Do it Best Hardware in Minong, WI, ( sale notice ) another other is Hackensack (MN) Lumber and Hardware ( sale notice ), and the third is an unidentified store in Hialeah, FL ( sale notice ).
Companies Obsess Over Value Propositions When They Sell. How About When They Recruit?
Jennifer Swick and Scott Ericson believe many construction supply companies are losing the competition for hiring new talent before they even think they're in the game.

Potential hires are considering--and possibly rejecting--you long before they ever apply for a job, the two founders of Wheelhouse 20/20 told attendees Oct. 9 at the annual ProDealer Summit , organized by the National Lumber & Building Material Dealers Association and HBS Dealer. Swick and Ericson showed a chart (see above) that suggests an LBM job candidate's journey typically begins by hearing about the dealer through various sources and then researching the business, mainly via visits to the company's website. It's only after the person finishes those steps--and still feels good about the dealer--that they think about filing an application.

The upshot, Swick and Ericson said at the Colorado Springs, CO, gathering, is that the image you present and message you send through your website and other marketing vehicles play a crucial role in persuading a potential worker to seek a job. These overt and covert messages constitute what they described as a company's "Employer Brand." And one key part of that branding is what they dubbed the "Employee Value Proposition."

Similar to the value proposition delivered to customers, an Employee Value Proposition describes the company's essential qualities and frames them in terms of what an employee will get out of working for that business. For instance, here's the value proposition from a software company in the oil business called Rigup:

We're changing the way people work in one of the oldest and most complex industries in the world. Here, you will work on hard problems that no one else has worked on before with smart people who care about building products that people want. If you were the kid who ran a lemonade stand, we want to hear from you.

Swick and Ericson stressed that whatever you put in the proposition should align with your company's values, mission, and vision. It should aim to present your company as a desirable employer, communicate what makes you an exceptional employer, and communicate why your ideal candidate would want to work for you.

The big challenge, they said, is that LBM isn't regarded by outsiders as a desirable industry. The only way to change that image is to change the messaging--i.e., the Employer Brand. Proactively managing your company's image and reputation will boost your chances of getting great candidates.
Building Component Manufacturing Firms
Bet on Automation to Counter Labor Shortage
By Craig Webb

Software-driven machines, robotic arms, and relatively new concepts were on display Oct. 22-24 at the Building Component Manufacturers Conference (BCMC) in Columbus, OH. All were powered by one thought: Component manufacturers better automate fast, because they can't find enough human beings to build stuff the old way.

Attendees could take heart that component manufacturing is hot these days, and likely to get hotter. Builders increasingly are turning to offsite construction of wall panels, floor trusses, roof trusses and other items because they also can't find enough framers to build those things at the jobsite. Many attendees said they are operating at capacity and easily could sell more if they had the personnel. Automation and creative thinking were offered at BCMC as a way to fill the gap.
The two biggest exhibitors were New Zealand's Spida Machinery , which took over Square1 Design and Manufacture last July, and Mitek . The Spida display included lots of sophisticated equipment. For instance, the automated nailer (shown here) has cameras underneath that notice when the stud beneath the sheathing isn't lined up properly for the nailer. Equipment beneath then nudges the stud into a place where it can get nailed properly. Spida also showed off its software-controlled saw and human-assisted nailer .

Mitek's offerings--including a robotic arm to put truss members into place--were just as comprehensive. But one of the other Mitek displays that drew attention was a floor truss "cassette" (shown in the photo above) that was built in a way that would enable plumbing and HVAC equipment to be installed in the factory. Once at the jobsite, the cassette and its units would be connected with adjacent cassettes.

It's a concept already being employed by some firms, including those that make modules for hotel rooms. In those, the fixtures are installed in the module and then connected with the mains at the jobsite.

This Confab Was on Tech Advances in Building,
But People Issues Dominated the Conversation
By Craig Webb
President, Webb Analytics

The Industrialized Wood-Based Construction Conference held in Boston on Nov. 4-6 struck me for the intensity of interest its 450 participants and scores of exhibitors displayed in exploring ways to build more buildings with mass timber, modular units, and components built offsite. Between the new initiatives in North America and the multi-year expertise of people from Europe and Asia, attendees got lots of practical ideas on how to take construction to new heights.

But it wasn't all blue-sky blather at the event. In session after session, speakers identified hurdles slowing the path toward industrialized wood-based construction. And most of those hurdles involved people.

Marrying technology like Building Information Modeling (BIM) with products like cross-laminated timber (CLT), trusses, and so-called volumetric modules can help builders erect structures faster, taller, and more efficiently than using current methods and relying on concrete and steel, speakers pointed out. One key, they said, is to demand intense cooperation among all parties while the building is being planned. Here's one reason why: The earlier that component manufacturers and installers get involved in the process, the easier it is for them to make adjustments that can save the developer time and money, as well as spot design problems well before they show up on the jobsite.

Whether these techniques are cheaper--particularly the first few times they're used--was another question. Advocates said builders who have employed industrialized wood-based construction for a few years, such as in Australia, have found the process can be cost-effective. But other speakers said framing crews can hurt progress by demanding they get paid at or near the same amount per lineal foot to install wall panels as they would if they were building the panels onsite. Bankers also have problems, because they are used to all the collateral being in one place rather than seeing some of the assets at a modular factory that could be in another country.

In the end, participants agreed that industrialized wood-based construction has great potential if companies embrace the technology and foster cooperation among all parties involved in putting up the building. For building material dealers, especially those with component manufacturing plants, this could result in them getting a place at the project table far earlier than when the bids go out.

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