10 for '20: The Year's Most Significant Events in LBM
What's popular often isn't what matters most; if clicks and likes were all that mattered, the marriage of 84 Lumber's Maggie Hardy would have been my top story in 2019.
This year, the impact of some news was immediately apparent, while seemingly smaller developments won't be a big deal until 2021 and beyond. With that in mind, here's my list of the 10 most significant events of 2020.
1. Bain Capital Buys US LBM
The Nov. 13 announcement about US LBM's new majority owner gets the top spot for two reasons. First, it lets US LBM become an even more aggressive acquirer of existing yards and opener of greenfield sites. In 2019, it made three deals for 10 locations and opened six new sites. But just since August this year, it has made four purchases for 16 facilities (most notably Michigan's Zeeland Lumber) and opened four greenfield locations. Now that it's part of a fund with $105 billion in assets under management, paying for what it wants shouldn't be a problem.
The acquisition also ends 2-1/2 years in which US LBM's previous majority owner, Kelso & Co., considered making US LBM a publicly traded company. Its decision to stay private instead means Builders FirstSource soon will be the only public company in LBM.
Speaking of which ...
2. BMC's Merger with BFS
The LBM industry woke up Aug. 27 to the biggest deal ever in construction supply: The merger of America's two biggest lumberyards, BFS and BMC. The resulting $11.2bln behemoth will employ 26,000 employees in 550 locations across 42 states from Florida to Alaska. The combined company, which will carry the BFS name but have BMC's Dave Flitman as its CEO, will serve 44 of the nation's 50 biggest metro areas. The all-stock transaction likely will close within days.
Executives from both companies touted the merger as "transformational," but the biggest transformation within the new BFS might come in the form of fatter profits. The companies have similar operating styles and pretty much the same strategy: sell big builders on geographic breadth, market depth, and the ability to provide value-added components and millwork. At the same time, Flitman might also opt to continue BMC's recent efforts to buy companies that focus on remodelers and small builders, such as BMC did Nov. 30 when it bought TW Perry. But if the past history of mega-mergers holds, Flitman and his team are more likely to focus their attention on uniting the operations.
The merged company is forecast to generate $130 million to $150 million in synergies. Vendors can expect to negotiate bigger rebates with the new BFS' buyers, while competing dealers are licking their chops over the opportunity to hire people and buy locations that BFS will shed in 2021.
Covid Wakes Up Dealers to BOPIS and E-Commerce
The old line about dealers being slow to change was proven wrong when Covid came to town. Within days, LBM operations embraced curbside service, promoted BOPIS (buy online, pick up in store) and ramped up their e-commerce capabilities. All ultimately were hailed as good improvements--and necessary ones, given the public's dramatic increase in online purchases. There may be fewer videoconferences in 2021 than dealer executives experienced this year, but offerings like BOPIS, curbside service, and e-commerce are likely to grow even more popular.
Do it Best Keeps It in the Family
Buying groups wince every time a BFS, BMC, or US LBM buy a dealer, because it potentially siphons off one of their members. Do it Best didn't use those words, but the intent behind its Aug. 6 announcement about entering into a joint venture with Nation's Best Holdings was clear: By investing in Nation's Best, every dealer that the holding company acquires will have been--or soon will be--buying suppliers through Do it Best.
Do it Best no doubt has played matchmaker over the years; it sure looked that way last summer when Illinois-based R.P. Lumber (one of Do it Best's biggest members) leapfrogged several states to enter Wyoming and acquire Build-Rite Do it Best Center and Saratoga Do it Best Lumber. But the Nation's Best investment deepens that strategy, one already employed by Orgill and by Ace Hardware. Nation's Best grew by 16 locations this year. No doubt they won't be the last.
FBM, Hurt by Coronavirus, Goes Private
While residential- and retail-oriented construction supply companies enjoyed surprisingly good sales this year, firms that catered to commercial customers stumbled. Foundation Building Materials was one such problem child.
The nation's second-biggest drywall specialist saw its year-over-year sales shrank 13.2% in the second quarter and 7.7% in the third. Burdened by a debt load 2.67 times bigger than its adjusted EBITDA for the last 12 months, majority owner Lone Star Capital decided to sell the company and its debt to American Securities LLC for $1.37 billion--about 8.4 times EBITDA. The transaction is a reminder that there are many parts of construction supply, and not every one of then performed equally well.
(Dec. 21 update: Hours after this story was published, Beacon announced it was selling its 81 interior products branches to American Securities. These specialists in drywall and steel studs appear to be most of the Allied Building Products stores that Beacon acquired several years ago. With this and the FBM purchase, American Securities now is the only big rival to GMS.)
CBUSA Sold to a Tech Company
Bill Smithers believes fervently that the future of building products purchasing lies in new and improved technology. He has spent the past few years promoting the concept at CBUSA, the co-op for custom and small tract builders that he leads. Now CBUSA has taken an even bigger leap toward its target: CBUSA was sold to the company that makes CoConstruct, a project management program for builders.
You can find CBUSA members in nearly three dozen markets nationwide, and CBUSA is gunning to set up buying chapters in two dozen more. CoConstruct's backing likely will improve its growth chances. Custom builders are the core business segment for lots of dealers nationwide. At the very least, the deal is likely to require you learn more about CoConstruct if you hope to sell to CBUSA members.
Lumber Prices Skyrocket; Supply Chain Kinks Revealed
I don't need to tell you how crazy lumber prices were, or how many product categories experienced shortages. What I'm wondering now is how this experience will change the way dealers buy in 2021 and beyond.
Lumber futures remain a foreign concept to most dealers; will that change? Productivity experts like Shane Soule foresee the day when sales trends at the retail level will flow automatically up each level of the supply chain, ultimately notifying the manufacturer of needed changes many days earlier than when they get the news today. Of course, such an advance would require better tech and more trust up and down the line. Perhaps Covid will be that catalyst.
Mass Timber Codes Start to Take Hold
Fans of wood-based construction weren't going to wait any longer than they had to in order to start taking advantage of the 2021 International Building Code and its sanctioning of mass-timber buildings that can soar as far as 14 stories above today's typical four-story ceiling. By August, the proponents had persuaded five states and several cities to embrace the 2021 IBC. Bolstered by timber manufacturers' decision to continue the Softwood Lumber Checkoff assessment, you can expect the industry to increase its efforts to persuade builders and architects to use wood rather than steel in multi-story buildings. This ultimately should provide more sales opportunities for dealers.
SRS' Landscaping Division Blossoms
In February 2019, the roofing specialist SRS Acquisition announced it was creating a new division devoted to landscaping and irrigation called Heritage Landscape Supply group. On Dec. 18, with its acquisition of the eight-story REAMS Sprinkler Supply, it topped 100 facilities nationwide. Roll-ups are an SRS specialty, and this one shows no signs of stopping.
PPP Loans: Cosi Fan Tutti, LBM Style
One of Webb Analytics' most-downloaded stories this year wasn't a story at all. Rather, it was a list of the 3,345 home centers, hardware stores, lumberyards, and other building material dealers that received between $150,000 and $10 million each under the federal government's Paycheck Protection Program. (Click here for a link to the list.)
Collectively, those companies received between $1.03 billion and $2.54 billion to protect more than 135,000 jobs and pay bills as the COVID-19 pandemic began to ravage the U.S. economy. More than 4.2 million other companies received less than $150,000 each, but we don't know how many of them were in construction supply because the Small Business Administration (SBA's) didn't identify them. However, odds are good that thousands--if not tens of thousands--were hardware stores, home centers, lumberyard.
Webb Analytics heard of a few cases in which LBM leaders objected to applying for PPP money, particularly after it became clear that their businesses wouldn't suffer from Covid. But the SBA's numbers make clear that, for lots and lots of dealers, PPP was too good an offer to refuse. It's like the Mozart opera Cosi Fan Tutti: Everybody does it.