Analysis, strategy, and insights for decision makers in the building products industry.
July 2021
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Seven Recent Headlines That Carry Clues
Which Could Help You Plan Future Moves
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By Michael Collins, Managing Director, BIA
We're about a week away from the Aug. 5 announcements by Builders FirstSource and Beacon Building Supply regarding their latest quarterly results. Given their size and breadth, both companies are likely to give us a good idea of how the LBM industry performed in the second quarter, and perhaps what we can expect through year-end. But if you want a forecast of what's to come, you need to rely on more than just those two companies' statements. Here's what I have been collecting while we await BFS and Beacon's reports.
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M&A authorities appearing on CNBC and in the national press see continued concerns about changes in tax laws as a motivation to do deals now. Which changes are most worrisome? A recent letter to Congressional leaders by the National Lumber and Building Material Dealers Association lists several. Among them are increases in the corporate income tax rate or on capital gains as well as changes to the 20% tax deduction for pass-through entities.
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Universal Forest Products is always one of the first wood-related companies to post quarterly results. Its earnings report was a tale of two quarters, with lumber prices starting high and then falling hard. By June 30, it had reduced the value of its (largely lumber) inventory by $23 million. "We believe the lumber market is trading today within the range whee it should remain for the next 30 to 60 days, with slight fluctuations," CEO Matt Missad told analysts on July 21.
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Longtime Builder Editorial Director John McManus' latest data harvest suggests strong demand for housing for at least several more years because Millennials will need the room. The household formation rate jumped from an average of 856,000 households per year in 2013 through 2016 to hit 1.3 million per year for 2016 through 2019. We're starting to see a rise in marriages nationwide, partly because of the COVID pandemic but mainly because Millennials are finally tying the knot. This demand occurs as the inventory of homes is at historical lows. Harvard's Joint Center for Housing Studies notes that, as of April, there was just 2.4 months of supply on the market, far below the six-month supply that would indicate a balanced market.
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The nation's biggest publicly traded builders purposely restricted sales during the second quarter on the expectation that they'll be able to sell homes later, presumably when lumber is cheaper but demand remains high. D.R. Horton's average sales price for orders in Q2 was 10% higher than Q1, while TRI Pointe Group posted a 4.7% gain and PulteGroup had a 7% rise. Pulte's backlog of homes now tops 20,000, half again as many as this time last year. Evercore ISI's analysis of the 1.16 million single-family housing starts in June (up 29% year over year) was that order trends will accelerate again later this year.
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NAHB noted that the 144,000 single-family homes permitted but not started as of June is 58% higher than a year ago. Meanwhile, the 675,000 single-family homes under construction as of June is 32% higher than in June 2020.year. This indicates that the stronger pace of construction is being outstripped by an even stronger increase in demand.
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When building experts mull over whether to revise construction standards because of the Surfside Condo building collapse in South Florida, they might look to Britain for inspiration. That country has had its own reckoning with construction and maintenance issues in the form of the Grenfell Tower of 2017, where 72 people died. Now the British government has introduced a building safety bill that gives residents more power to hold builders and developers to account for what they do. The legislation also creates a new Building Safety Regulator that will oversee building performance and implement tougher regulations for higher-risk buildings.
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On the other hand, Americans likely will be glad they don't have an app like the one that Britain's National Health Service (NHS) created to ping people if they and their phone get near others who have tested positive for COVID. When that happens, NHS recommended they self-isolate for up to 10 days. So many people have received the warnings that a "pingdemic" has swept Britain, resulting in huge delays in both deliveries and construction.
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New Investment Vehicle Formed, Makes First Deal as Part of 'People-First' Operations Plan
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The past six weeks have not only produced plenty of deals and greenfield openings, it also marked the creation of a new regional LBM platform that aims to distinguish itself by how it operates.
Southeast LBM Interests "will engage people-first business practices and broad-based employee ownership to better align collective shareholder, management, and employee interests, elevate workforce prosperity, and drive enhanced organizational performance," Building Industry Partners (BIP) said in a July 15 news release.
BIP announced simultaneously that it had partnered with veteran dealer Roger Farmer to acquire Warner Robins Building Supply (black pin in map above), Henson Building Materials (purple pins), and Mountain Building Supply (green pins). The companies' eight yards in Georgia and the Carolinas all were owned by the Bayer family; collectively they generate $80 million in annual sales. Farmer has been in LBM for more than 25 years, most recently as EVP of Swift Supply in Alabama and Florida.
Building Industry Advisors represented owner Mark Bayer in the sale of Warner Robins.
Matt Ogden, Founder and Managing Partner of BIP, said Southeast LBM Interests operates with a "people-first purpose."
"We'll be implementing broad-based employee ownership programs, with supporting programs designed to set in motion the virtuous cycle of investing in people," Ogden said in the news release. "There is a wonderful opportunity ahead for this family of companies, our employees, our customers, and all of our business partners."
BIP's new venture continues its involvement in the U.S. building industry. In past years, it has helped create and grow US LBM, Kodiak Building Partners, United Cabinet Holdings, Rugby Architectural Building Products, Homewood Holdings, and U.S. Fence Solutions/Binford Supply.
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M&A Pace Remains Torrid, Nearly Tripling the Number of Yards Bought in Year-Earlier Period
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By Craig Webb, President, Webb Analytics
Through July 26, we've recorded 57 deals affecting 295 locations (the blue dots on the map above). That's nearly triple the number recorded over the same period in 2020. Meanwhile, the number of greenfield openings (green dots) has nearly doubled, to 65, from last year's 35, while the number of closed locations (red dots) we've spotted has fallen to four vs. 21 in 2020.
US LBM figures prominently in recent activity. On July 1, it announced the acquisition of Brand Vaughan Lumber, arguably the Atlanta area's biggest remaining independent dealer. Then the next day it expanded in Arizona by taking on Home Center Supply, located in Heber and Payson.
Along with Building Industry Partners' acquisition of the Warner Robins Supply family of companies (see story above), there were many other deals worth noting:
R.P. Lumber went from one to three locations in Iowa with its purchase of Malcom Lumber, which has yards in Grinnell and Oskaloosa.
ABC Supply bought DAICO Supply of Carrollton and Fort Worth, TX. It also opened a store in Lihue, HI, its first location on the island of Kauai.
Nebraska-based Mead Lumber expanded one state south by acquiring Kansas' Heartland Building Center, which has a lumberyard and a truss plant in Hays plus lumberyards in Russell and Stockton.
Hamshaw Lumber picked up Leader Home Center, with three facilities in Massachusetts (South Deerfield, Greenfield, and Barre) and one in Vermont (Brattleboro).
Also in New England, Kodiak Building Partners acquired Ricci Lumber of Portsmouth, NH.
Less than a month after selling the Meek's chain to US LBM, American Construction Source became a buyer again, picking up Tanco Lumber of Branson West and Forsyth, MO.
Texas-based Nation's Best Holdings added New England to its territories with the purchase of Caron Building & Rental Center of Berlin, NH. Do it Best is an investor in Nation's Best, which to date has bought yards belonging to the Do it Best co-op.
SRS Distribution beefed up in Chicago by buying three companies that had the same owner: Acorn Roofing Supply of Chicago, Prairie State Exteriors of Chicago Heights, and 55 Building Supply of Chicago.
Catching up, Floor & Decor has opened nine greenfield locations so far this year. They are located in Danbury and Fairfield, CT; Fresno and Bakersfield, CA; Commack, NY; West Des Moines, IA; Tulsa, OK; Greenwood, IN; and Greenville, SC.
Marcus Lumber opened a store in Storm Lake, IA.
LL Flooring opened outlets in Hattiesburg, MS, and Beckley, WV.
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Is COVID's Delta Variant Complicating Your Return-to-Work Plans? This Advice Might Help
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It appears that business executives nationwide are re-thinking their return-to-work plans for employees because of the surge in COVID infections. How can you make the right call? Perhaps Mai-Tal Kennedy can help.
Kennedy (shown here) is a consultant at Building Industry Partners devoted to helping BIP's portfolio companies create "people-first" cultures. Part of that effort is to assess and review policies that impact policies by using what she calls the Employee Value Proposition.
EVP is made up of five core elements that correlate to key employee mindsets: Financial security, advancement opportunities, career resilience, employee engagement, and employee wellness. In a recent column, she shows how looking at remote/flexible working arrangements through the EVP lens "helps surface the questions that will help you define and informed and equitable way forward." The column includes a set of questions you can ask yourself to see how your ultimate decisions align with your EVP goals.
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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
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