Leads, Latinos, Lending, and More (Especially M&A): Dan Tinker on SRS Distribution’s Future
As it nears $8 billion in annual revenue, SRS Distribution is growing so fast (more than 525 locations) and in so many ways (forays into finance, pool supplies, and Latinos) that an interview with President and CEO Dan Tinker necessarily covers a wide range of topics.
Webb Analytics spent an hour with Tinker on Feb. 1 in New Orleans during the International Roofing Expo. Here are the highlights:
Even after making 105 acquisitions, SRS’ roofing group aims to buy roughly 85 more locations and open an equal number of Greenfield spots.
While it started primarily with hardscape, Tinker sees SRS’ Heritage Landscape Supply Group morphing into a specialty site for all types of outdoor products, including decking, windows, doors, and pool supplies.
The company launched ProFund, an initiative that mines social media to help roofers find leads, then provides customer financing to help roofers sell.
While privately held, SRS has three programs that help employees get a stake in the company—and its profits.
SRS has invested heavily in a new program serving Spanish-speaking pros. This includes business training.
SRS will continue to be a family of brands rather than have just one name on its stores.
Tinker sees sales to slow eventually as COVID recedes. He cites several ways he believes SRS has positioned itself to keep growing.
Tinker regards one of his greatest achievements is keeping SRS out of the hands of another giant LBM operation.
Here are Tinker’s comments from that interview in his own words, edited for clarify and brevity.
Growth Plans
"We bought more roofing distributors in 2021 than we ever have, so there’s certainly a lot more to buy. Is roofing distribution, specialty distribution in the late innings of consolidation? Absolutely. Are there 150 independents still around? Absolutely. How many of them will ever transact or join forces with someone else. My prediction is that in the next five to 10 years, half will. But that still leaves 75 good family companies.”
“… We’re only 380 branches in roofing. We need 550. So we still have 170 to go. We think that 170 to get the national footprint finished is probably fifty-fifty: 50% acquisition, not in companies but in branches, and 50% greenfields. If we can buy somebody in a market, that’s the way we want to get in, as we want to get the talent, the brand name, the team, and add a greenfield to add exposure to that market.”
Heritage Landscape’s Future
“When we sit around strategically, we say ‘We want to own everything from the fence all the way to the foundation, and all the way on the outer envelope of the home.’ … Landscaping, outdoor lighting, pools, decking. We probably won’t get into brick because it’s vertically integrated, but fiber cement, vinyl siding, windows, gutter, roofing, and all the way around to the front door.
“We want to be everything big, bulky, heavy, that Amazon can’t put in a box. Things that Home Depot and Lowe’s are not good at because they’re selling to the pro—they have to extend credit, you need huge, massive amounts of infrastructure, heavy equipment, and warehouse space close to the job site. That’s our business model.”
“[Heritage] is the second-largest landscaping distributor in the country and now the second-largest pool and spa supply distributor in the country. We weren’t even in this industry three years ago. The fact we now have 230 branches in three years doing $2 billion-plus in revenue—which by the way, it took us nine years in roofing to get to $2 billion—that just shows you the power of this channel.”
Generating Leads, Creating ProFund
“What is the industry benefiting from right now? Great demand from COVID. So we said, ‘What’s going to happen when the party’s over?’ We’re going to be sitting in a declining demand environment. And we’re going to be sitting in an inflationary environment where, to replace your roof, it’s going to cost 20% more than it did a year ago.
“So one of the two things that, if I’m a roofing contractor and {SRS is] your partner, what do I need when sales are declining but inflation is rising? I need [to give] help to a homeowner that could have afforded an $8,000 roof but can’t afford a $12,000 roof. I need financing. But what else do I need? When I’m not sold out anymore a year from now, after COVID demand [recedes], and everybody who wanted a roof got one? … One [answer to the question] is financing to allow homeowners who couldn’t afford a check for ten grand but can afford $150 a month with low interest rates, And the other [answer] is leads.”
“So we are investing millions of dollars as a company to do things very creatively, to find out things you would not have thought of in the industry before. Like if your daughter had a home and she was sitting there and it was hailing and she took a picture of a hailstone and posted it on Instagram or Facebook, we would actually track that and push advertising that says ‘I think you need a roofer, I think you need a roof. Let me tell you that we are a company that can show you three great roofers and they all can give you a quote tomorrow on your home.’”
“On the lending side, we have built our own captive lender financing arm that also does things that no one else does. …A contractor can give us an address they’ve been asked to go to tomorrow. Before they ever show up, we can say the [prospect is] pre-approved, because we know based on their neighborhood and the address, that that house is a $700,000 home and they have a 700 or higher credit score and you’re already approved for a zero-down, no-interest financing [loan] for five years, and a $10,000 job is now $200 a month. Now they have something to offer that other contractors don’t have when they show up. You don’t have to give your Social Security number and call this 1-800 number and be annoyed by some lady for 30 minutes. By SRS’ ProFund arm, you’ve already been pre-approved. It’s done. That’s how it works.”
“It’s amazing, it’s totally unique and different and it’s captive, but we’re only offering it to bespoken and our select contractors that understand how it works and what to do to drive more demand.”
“Again everything we do is about creating more demand, in a post-COVID environment, of how contractors want to grow their business.”
Bonuses and Buying In
“One thing that’s unique about our model, and I think we’re the only ones that does it, that I’ve ever heard of, is that every employee has equity. So all 8,600 today do. “
"We have three tranches of equity: We have direct equity. Any employee of the company, no matter what your title, can buy equity in the company every quarter. We open the window, like a public company. Think of it as like a public company that trades four times a year. We publish the stock price. It’s based on public comps, our earnings, lots of factors. But it’s [done by] a third party that I have no influence over, and neither does our board. In that way, people don’t feel diluted as in a public company because they’re buying at an elevated price. It’s $10,000 per investment. So when we pay out a dividend like we did in June, part of that group is that group [that bought shares], which does include former owners. But it’s not exclusively former owners. That group today is over 1,000 employees.”
“In addition, we have 1,000 employees who, based on their job title, get gifted stock options. And that’s illiquid until we sell the company or pay a dividend.”
“… Our hourly employees were being left behind. So the board let me build a pool of what I’ll call phantom stock, and we gifted $20 million of the equity of the company for our hourly employees. There’s no capital limit as to how that money grows; all of it gets distributed to the hourly employees. And because of that, one year after we gifted that, we paid a dividend, and as a result, every hourly employee got a payout as well as all of the stockholders and option holders. Now, that keeps accruing benefit in perpetuity, forever. So if we sell or go public five years from now, all of that value gets distributed to those three different groups. Those three different groups—and some could be overlapping—that grouping is 25%.
