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Filings Show What Beacon Shed, FBM Gained with Sale of Interior Products Stores

Thanks to new owner American Securities LLC, Foundation Building Materials (FBM) has expanded its network by roughly 50% through the acquisition of Beacon's interior products facilities. Now comes the challenge of integrating roughly 80 facilities that have produced modest returns into a company that has had its own Covid-related challenges.

The pandemic has been tough on companies like FBM and Beacon's interior products group, both of which specialize in selling drywall and steel studs. Interest in commercial and multifamily construction has withered since last summer, and the twin trends of working from home and moving to detached suburban houses appears likely to keep depressing commercial and multifamily investment.

Beacon's roughly 80 interior products felt the impact. According to Beacon's latest quarterly earnings report, the discontinued facilities recorded a 4.2% decline in sales during the October-December 2020 quarter, slipping to $248.8 million. Based on numbers provided for goods sold and SG&A expenses, it appears the units' operating profit was halved to $8.1 million, or 3.3% of sales.

FBM looks to have suffered as well. Its sales for 2020's April-June quarter fell 13.2% from a year earlier, while its revenue for July through September declined 7.7%. The company hasn't posted revenue or profit numbers for the fourth quarter of 2020 (and might never will, now that it was gone private), but one set of figures in a filing related to the merger suggested 4Q revenues were about $500 million. That would be a 2.7% year-over-year decline.

Beacon in 2017 paid $2.88 billion to buy Allied Building Products's 208 branches, an acquisition that included the approximately 80 interior products stores that now are being sold. At the time, interior products made up 40% of Allied's $2.58 billion in annual sales, or $1.03 billion.

What has happened since can be seen in several numbers from Beacon's latest SEC filing. One is a $355.4 million loss on classification as held for sale. Beacon said it came up with that number by comparing the adjusted purchase price of the stores it was selling to the carrying value of their net assets. That carrying value included roughly $734.3 million worth of goodwill as of Sept. 30, the end of Beacon's 2020 fiscal year. But as of Dec. 31 when the latest quarter closed, the value of goodwill placed on the interior products facilities was slashed by roughly half, to $378.9 million.

The loss on classification, plus depreciation and amortization, produced a pretax loss of $360.1 million for the interior products branches. Beacon salved that wound a bit with a $92.2 million income tax provision, reducing the net loss from discontinued operations to $267.9 million.

Beacon noted these numbers likely will change, saying: "Upon closing of the transaction, the estimated loss will be adjusted accordingly to reflect the final purchase price and carrying value of the net assets of Interior Products as of the close date, which will include an updated allocation of the Company's goodwill to Interior Products."

FBM, which had its initial public offering in February 2017, has considered offers to buy it since 2018, including American Securities in June of that year. That bid ultimately ended, but interest revived in July 2020 and the deal was signed on Nov. 14 and closed on Jan. 29. American Securities purchase of the Beacon locations was completed on Feb. 10.

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