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Builders FirstSource to Acquire ProBuild

Paul S. Levy, Chairman of the Board of Builders FirstSource and Founder of JLL Partners, said, “Since JLL Partners founded Builders FirstSource in 1998 and took the company public in 2005, we have been intently focused on creating a leading platform that professionalizes the building products industry through a best practices approach to conducting business. We are accomplishing our objective by providing a variety of products and services as well as personalized attention to our customers at the local level, and the combination announced today will significantly advance these efforts across a broader operating footprint. We are confident that the substantial additional resources that ProBuild brings to Builders FirstSource will help drive significant value creation over the long-term.”

David A. Barr, Managing Director, Co-Head of Industrial and Business Services, Warburg Pincus, commented, “When we first partnered with Builders FirstSource, we saw significant opportunities for the company to pursue acquisitions in the highly fragmented building products distribution industry. Builders FirstSource has established itself as a leader in its field, and this combination with ProBuild will enable the Company to continue to capitalize on favorable market trends in the housing market.”

Strategic and Financial Benefits of Transaction

  • Greater Diversification and Scale: The combination creates a diversified national pro dealer with 2014 combined revenues of approximately $6.1 billion. The transaction represents an important opportunity to grow in four critical customer segments, including Production Builders, Custom Builders, Multi-Family/Commercial and Repair & Remodel. The enhanced diversification of products and services will enable the combined company to capitalize on the continued recovery in the housing market, while also better protecting the Company from cyclicality through broader sales exposure.
  • Improved Geographic Footprint: Upon completion of the transaction, the combined company will be better positioned to meet the needs of all customers in the highly fragmented professional building materials segment. The combined company will have a presence in 40 states and 24 of the top 25 metropolitan statistical areas (based on 2014 Single Family Home Building Permits per U.S. Census data).
  • Expanded Sales of Higher Margin Products: Builders FirstSource brings to ProBuild significant sales expertise in value-added products, which combined with ProBuild’s attractive customer mix, should result in enhanced sales growth of higher margin products.
  • Substantial Cost-Savings: The combination of Builders FirstSource and ProBuild is expected to generate a range of approximately $100 million to $120 million in annual run-rate cost-savings synergies in the first two years following close. Actions to begin capturing a majority of these savings are expected to be implemented within the first 12 months following close through network optimization, procurement, and general and administrative costs. One-time costs of $90 million to $100 million are expected to be incurred to achieve these synergies during the first two years.
  • Favorable Timing, Growth Potential and Financial Impact: The U.S. single-family housing market is at near record levels of affordability and demonstrating a solid recovery. At today’s level of approximately 1.0 million total housing starts per year, total housing starts still need to increase approximately 50% to reach the historic median and double to reach prior peak levels. The combined company expects to capitalize on its expanded financial profile through the recovery. Both companies have steadily improved adjusted EBITDA and margins through recognizing efficiencies over the past four years. Additionally, the transaction is expected to enhance adjusted EBITDA and margins through the realization of substantial cost synergies and a more diversified portfolio. The transaction is also expected to be immediately accretive to Builders FirstSource’s earnings.
  • Strong Cash Flow Generation Supports Expected Delevering: On a December 31, 2014 pro forma basis, the combined company had pro forma net debt of $2.1 billion, including lease finance obligations, which implies a multiple of 5.6x net debt / adjusted EBITDA, after giving effect to $110 million of annual run-rate cost-savings synergies, the midpoint of the expected range. The combined company is expected to generate significant cash flow that will allow it to delever following the close of the transaction. This delevering will be driven primarily through cost savings realization, earnings expansion, and strong free cash flow generation from operations, further enhanced by the recovering housing sector and the utilization of tax assets.

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