Analysis, strategy, and insights for decision makers in the building products industry.
September 2021
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What Will Be Your COVID Story? |
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By Michael Collins, Managing Director, BIA
Eighteen months in, COVID has become the unwelcome guest who shows no signs of leaving. In medical-speak, the pandemic is becoming endemic--a condition like the flu in that it will be with us year after year, only with worse consequences. Businesses will be forced to continue adapting each time a new wave of the virus comes to town.
Then again, change is an intrinsic part of life in a construction supply industry where prices go up or down daily and new opportunities or challenges arrive every time a customer walks through your door. Investors know this as well, and when they consider acquiring your business they're going to want to know how you've responded. What you did during the Great Recession was a common question pre-COVID. Now investors are asking how you have dealt with the stresses caused by the current pandemic. Thus, it's time for you to prepare your COVID story.
Like any good tale, your story should feature a villain (the virus), a hero (your company), and a confrontation (how you responded to the pandemic) that leads to a happy ending (your company's subsequent growth). Take some paper and list all the challenges you faced and all the ways you answered those challenges. Given all that has happened since early 2020, odds are you've forgotten some of the good things you did; the list will help remind you. At the same time, the list could expose some problems that you haven't resolved but will matter to an investor. Spotting them now can help you install a fix before those issues become a liability at the negotiating table.
I'm NOT suggesting you write fiction here--the investors' due diligence could expose your fudging and lead buyers to question whether to work with you. Be factual, logical, and complete. Acquirers are looking for a management team that came together to be proactive and that took cohesive action. Even if the first three new approaches you tried didn't work, buyers still will value your bias for action. The only wrong approach would be to float along, waiting for the challenge to resolve itself.
A sale isn't solely about a spreadsheet. It's also a story: About you, your people, the challenges you've faced, and the institution that has answered those challenges. Often, it's the story that matters as much or more than the numbers, particularly if it's a tale well told.
What will be your COVID story?
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Bradley Hartmann (left) interviews Meagan McCoy Jones (center) and Brian McCoy (right) at LAT Expo |
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The McCoy Family's 5 Tips for a Good Transition |
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Brian McCoy’s first personal experience with leadership transition at family-owned McCoy’s Building Supply was uncomfortably abrupt: When his father told him on a Saturday that Brian would take over effective on Monday.
Brian has taken a much different path with regard to the next transition: His daughter, Meagan McCoy Jones, will move into the CEO’s role next May. It’s a changeover that you could say goes back nearly 30 years, when a 10-year-old Meagan worked at McCoy’s as a receptionist. She and Brian have learned much about the process along the way, and on Sept. 14 they shared some of their discoveries during a session at the Lumbermen’s Association of Texas annual convention and expo. Here are highlights.
Practice “Courageous Communication”
Brian recalled a time before his father Emmett McCoy retired, when Brian proposed a workshop for managers. Emmett agreed, but said managers would have to use a vacation day to attend the workshop. Brian pushed back, and eventually relented because his father was still boss. But he added: “I told him I’ll be asking for the same thing next year.”
The key, Meagan and Brian said, is for family members engaged in a transition to speak openly and often to each other—just as one would want to see at any well-run business.
Engage the Executive Team
In 2012, Meagan joined McCoy’s executive team. Despite careful planning and the use of prepared remarks, Meagan says that she now believes the initial meeting didn’t go well. “I think we underestimated the succession journey,” she said, in part because while she clearly had a future as an executive, some non-McCoy members of the team became uncertain about their own future.
At any company, “You have people who identify with the company and with their job,” Brian said. “They need to be involved in the succession process. In succession, we think a lot about it being in the family, but it also affects others.”
Identify Your Lane
A multi-year transition often features a gradual shift in responsibilities over time. As this occurs, incoming and outgoing leaders need to identify who manages what and then stick to those duties. For instance, during Meagan’s time as chief operating officer, she has managed the operating budget, while Brian has controlled capital expenditures.
Put It in Writing
“Making the time to get your paperwork squared away is never at the top of our list,” Meagan conceded. However, “You’ve got to spend the time to make sure the agreements say what you want them to say.”
And think years ahead, she added. Meagan and her brother are making decisions now that will affect their children. Brian credited his father with setting an ownership structure involving Brian, his brother, and sister that ultimately forced him and his brother to have lengthy discussions when they started disagreeing about the company’s future. Ultimately, the family settled its differences and McCoy’s became a billion-dollar company
“You cannot hurry family issues,” Brian said. “If you wait to slow down something, then slow down with the ones who matter most.”
Stand Up and Cheer
While McCoy’s is just six years away from celebrating its 100th birthday, “success for my daughter is not the perpetuation of McCoy Corp.,” Brian said. And while there were lots of jokes about Brian becoming a babysitter to his grandchildren and the room full of books Brian wanted to read, he said that once he leaves the CEO’s office, “One of the things I want to do until I breathe my last is to be an encourager.”
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Source: FBMA and Ro-Mac Building Supply |
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LBM Leaders Say Labor Shortages Mean Supply Chain Woes will Persist Even After COVID Fades |
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COVID and the labor shortage will keep the supply chain tangled well into 2022, amid strong demand. This scenario inevitably will push product prices higher, six veteran construction supply leaders say.
The leaders forecast challenging times ahead as the LBM industry struggles to find a new equilibrium. Continued strength in the repair and remodeling market was expected to counter any potential slowdown in the new-home market.
The predictions were made Sept. 9 in Orlando, FL, during the annual FBMA Executive Panel session at the Gulf Atlantic Building Products Expo. Don Magruder, CEO of RoMac Building Supply, asked the questions on behalf of the Florida Building Material Alliance.
“I just read a very detailed report from Sept. 3 that said that, over the past 18 months, not one thing has improved in the global supply chain, and as of last week, every single aspect of it is worse than on April 1, 2020,” said Jon Vrabley, president of Huttig Building Products. “It is an inter-tangled mess of a variety of components, depending on which country you’re talking about. But there were two consistent things that continued to come up across the entire globe: The impact of COVID, and a lack of labor.”
While all the panelists agreed that COVID’s arrival early in 2020 triggered most of the current problems, they also said a lack of workers and cuts in production capacity since the Great Recession means construction supply challenges won’t end even when the pandemic recedes. Rick Caccavello, the president of Orlando’s Central Kitchen & Bath as well as head of the Greater Orlando Builders Association, noted that the cabinet manufacturers he relies upon used to be able to run three shifts a day. Now they can barely keep one shift going, he said.
“It’s a true comment that we don’t have enough manufacturing capacity,” said Tom Koos, president and CEO of Primesource Brands, but he stressed that this isn’t a COVID phenomenon. Production issues “have been going on for three or four decades,” he said. “Does it come back? There’s a lot of debates around that, but you still need raw materials from around the world, gang, it’s a global supply chain. A sawmill is pretty vertically integrated, but you’re still buying blades and such from other places in the world. If that is an issue, it doesn’t get fixed overnight. That one takes years.”
Indeed, when asked what pressure point they’d most want to resolve, all cited a lack of labor—along with “a few windows,” added Russ Hallenbeck, Tibbetts Lumber’s vice chairman and CEO. While the starts rate is beginning to flatten out in other parts of the country, St. Petersburg-based Tibbetts is seeing a housing boom in Florida the likes of which it hasn’t experienced since 2005.
“And [since] 2005, I believe 40% of the manufacturing truss plants are gone,” Hallenbeck added. “So how do you go from 27,000 housing starts a year to, say, 145,000, and have 40% less truss plants? There is a manufacturing shortage in Florida, I just know it.”
Magruder directed most of his lumber-related questions to Mark Calendar, VP and COO of Great Southern Wood, and Dan Beaty, the sales director at Langdel Industries.
“I think volatility will remain, and I think we’ll see higher prices due to some impacts from COVID,” Beaty said when asked about OSB prices. “For instance, some of the chemical industry was impacted by the hurricane. You may see some shortages there.” Both he and Callender said they believed current prices are too low. “It almost has to be higher because the cost to produce has gone up,” Callender said.
One bright spot came when Beaty, Vrabley, and the others pointed out that the repair and remodeling market has kept up what, in the first days of COVID, was a surprising surge in business.
“The demand [for new homes] is going to be there. The supply is not going to be able to keep up,” Koos said. “So, people are going to go back into their homes and remodel. If you have more equity in your home and you can’t afford a new one, you’re going to remodel.
“A starter home can’t be $750,000,” he continued. “I don’t think you can buy a home in Dallas for less than $250,000; that price was $150,000 five years ago. The market in general, you’re going to have good demand here, but it’ll bounce around from year to year. The R&R market will keep this thing very healthy for a long time.”
Vrabley said part of Huttig’s transformation in recent years involved putting a greater emphasis on the remodeling market. “Around 2006, 90% of our revenue was driven by SF new home production and 10% was a hodgepodge of other stuff,” he said. “Today, the repair/replace/remodel market is more than 35% of our revenue stream.”.
“Compared to a year and a half ago, I’d say remodeling inquiries have gone up 30% to 35%,” Caccavello said. “ A lot of people who planned on selling their home are starting to rethink that. So they’re remodeling instead of moving. Their value is going up, because the equity is there.”
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LBM facilities involved in deals (blue pins), greenfield openings (green), or closures (red) YTD 2021. Note shown: One deal and one opening in Hawaii. Source: Webb Analytics |
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2021 Deals Pace Doubles That of 2020 ... So Far. Will It Match 4Q20's Frenzy? |
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By Craig Webb, President, Webb Analytics
We near the end of the third quarter with what at first blush appear to be impressive statistics in the LBM deals market. As of Sept. 28, a total of 337 facilities have been involved in transactions, 2-1/2 times more than the 141 facilities listed in deals through the same date in 2020. The actual number of transactions has jumped to 84 from 52, greenfield openings are up to 86 from 50, and we've only had one-third as many closures (8 vs. 25).
But these numbers have to be put into context caused by COVID's impact from March through September. It's only in the fourth quarter that we really saw action last year: 345 locations in deals just during the last three months of 2020, along with 16 greenfield openings and 13 closures. If we do the same this year, it's likely 2021 will go down as one of the busiest markets ever.
Several familiar names appear on the list of actions since late July. US LBM purchased the five-location, Massachusetts-based Mid-Cape Home Centers as well as Northern Building Supply of Suttons Bay and Traverse City, MI. Meanwhile, Builders FirstSource acquired California TrusFrame's five facilities in California.
Elsewhere:
Oldham Lumber purchased a neighbor, McKinney Lumber of Melissa, TX.
Davis-Hawn Lumber of Dallas acquired nearby Architectural Carpentry Materials,
SRS Distribution bought Aloha Roofing Supply of Kapa'a, HI. The deal happened just weeks after ABC Supply opened a new store in Lihue, HI, on the same island of Kauai.
ABC Supply's L&W Supply closed branches in Punta Gorda and Englewood, FL, and consolidated them in a new store in Arcadia, FL.
Hancock Lumber went outside Maine for only the second time, acquiring Winnipesaukee Lumber of Wolfeboro Falls, NH.
Shaw/Stewart Lumber acquired Kruse Lumber, based in Rochester, MN.
Griffin Lumber grew again by purchasing Baldwin Builders Supply of Milledgeville, GA.
Also this month, we're also catching up on Heeter Lumber, a dealer that came to life in January with four branches in Western Pennsylvania's Clarion County. An outlet center was added recently, and owner Eric Heeter told a local newspaper that he hopes to open more lumberyards soon. Two of the facilities are tied into his existing concrete business.
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Stu's Advice on How to Become an Inclusive Leader |
Businesses do better when their leaders encourage inclusivity. How? Stu Kliman says it starts with learning and then reflecting on what you learned. He explains why in this recent podcast. Check it out.
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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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