When Building Materials Holding Corp. (BMHC) CEO Robert Mellor flew to Phoenix in 1997 to meet with Knipp Bros. Industries president Larry Knipp, whose firm dominated Phoenix's high-volume framing market, BMHC's future hung in the balance. Just 10 years removed from a leveraged buyout with former parent company Boise Cascade, BMHC had steadily acquired yards and blown up its top line to $728 million, but profits, at just 1.7 percent, were anemic. The problem was particularly vexing in Phoenix, despite a booming production builder market, as well as at BMHC's distribution arm, BMC West, which was barely profitable.
“We were selling a lot of commodity lumber, but we weren't doing as well as we should,” Mellor says. “The question became, do we stick to our guns or try to figure out another market? We had to do something. We were a public company. We had to grow.” At the time, competitors such as Stock Building Supply, Lanoga, and Builders FirstSource were buying yards at a frenzied pace. While BMHC had been acquisitive, it wasn't as aggressive. “BMHC isn't exactly gobbling up yards,” one competitor told PROSALES during that era.
But in Knipp, a BMC West customer whose success selling framing services to high-volume production home builders had caught the attention of BMC West's Phoenix operation, Mellor sensed an opportunity: If the dealer couldn't turn double-digit profits selling lumber to framers like Knipp, maybe it could partner with them and make money together. The only problem was that Mellor, a trained attorney, and BMHC, whose roots were very much anchored in traditional lumberyards, knew almost nothing about the intricacies of the framing business, let alone any future possibility of offering construction services. In fact, most traditional LBM dealers were struggling at the time just to offer installed sales, and when BMHC eventually invested in Knipp Bros. in 1999, it raised industry eyebrows.
“I thought it was a gutsy move on their part,” says Frank Chambers, a regional vice president with Charlotte, N.C.–based The Contractor Yard who helped sell several Wickes Lumber stores to BMC West in California in the 1980s and 1990s. “When you buy a framer, there are no assets; you're just buying smoke and mirrors.”
Just how far out of their depth Mellor and BMHC were became apparent in that first meeting with Knipp, right down to the clothes on Mellor's back. “We met at a golf club, and I came in my suit and tie,” Mellor says. “Larry strode up in Bermuda shorts, a golf shirt, and Top-Sider shoes. I had to make up an excuse that I had another meeting to get to later that day.”
Despite their differences in business backgrounds—and attire—the two men quickly hit it off. In a gut-reaction size-up of business culture first impressions that continues to color BMHC's acquisitions to this day, Mellor says he liked Knipp within five minutes. “You just knew right away: Here's the fella who can take us to victory in this market.” Knipp espouses respect for Mellor, too, though he hasn't forgotten his fashion faux pas: “Rob Mellor is the brains behind that operation,” he says. “But I still tease him about that tie.”
All joking aside, the ultimate result from that meeting today is a construction services juggernaut, a conglomerate of consolidated trades that BMHC has built over the last seven years to dominate the business of providing turnkey construction services to high-volume production home builders. And its success has been noted by customers and competitors alike. “When they started, we felt it was a high-risk strategy,” says Paul Hylbert, CEO at competitor Lanoga Corp. “But they've shown us, and the whole building material community, particularly the customers, that it's a strategy that has worked. They are the clear leader in construction services.”
Whole Package The Knipp Bros. deal was just the first of 16 construction services acquisitions that BMHC has rolled up over the last seven years to gain that leadership position. Today the company is capable of laying a foundation and plumbing a house, erecting its walls, hoisting its trusses into place, installing its HVAC systems, mounting its windows, crafting its interior trim, and slathering its exterior with stucco. And in 2005, construction services accounted for the majority of BMHC's revenues—54 percent—for the first time. Not only is that a huge swing from the 95 percent commodity mix the company started out with in 1987, but it's a trend that isn't about to stop. Mark Kailer, the firm's treasurer, says commodity lumber will likely account for just 20 percent of overall revenues in 2006.
BMHC's huge revenue shift to construction services—coupled with a desire for greater brand awareness—has driven the company to formally re-brand its construction services division to “SelectBuild Construction.” Officially launched June 21 at the Pacific Coast Builders Conference, SelectBuild brings those 16 companies (see “BMHC Construction Services Acquisitions,” page 74), formerly operating as separate units of BMHC's BMC Construction division, under one service umbrella and one name. Currently operating in 15 markets and eight states and Washington, D.C., SelectBuild serves 19 of the top 25 home builders and helps build 70,000 residential units a year. The company isn't shy about its ambitions to offer a whole-house solution, from trench to trim, while curing the age-old builders' headache of managing dozens of subcontractors to finish a home. With that bold aspiration, SelectBuild is BMHC's vehicle to drive its singular, service-oriented message, both internally and in the broader marketplace.