BMC and Stock Building Supply, the nation's ninth- and 10th-biggest pro dealers, respectively, announced today they signed an agreement to merge the companies in an all-stock, tax-free transaction worth $1.5 billion.
BMC's shareholders would own 60% of the resulting company and that company's chief executive officer, Peter Alexander, would serve as the new operation's CEO. Stock president and CEO Jeff Rea will be a board member of the new firm. The deal is expected to close by the end of this year.
The merger unites two companies whose operational footprints only occasionally overlap (see map). Raleigh, N.C.-based Stock has 68 facilities in 14 states and is strongest in Texas, the Carolinas, and Utah. BMC--officially Building Materials Holding Corp.--has 88 facilities located almost exclusively west of the Mississippi except for an operation near Charlotte, N.C., and the VNS Corp. operation in south Georgia that it acquired earlier this year. In 2014, it moved to Atlanta from its previous headquarters in Boise, Idaho.
"We don't have a horrific amount of overlapping markets," Alexander said today in a conference call with market analysts. "We bring different capabilities to the table. ... You're getting the best of both worlds in the combination of these companies."
Rea, on the same call, described the merge as "an opportunity to serve our customers better together than we did individually. We see that as very accretive from a service and solutions standpoint. We would expect that to drive accelerated growth opportunities going forward."
This is the second blockbuster merger in the lumber and building materials sector this year. On April 13, Builders FirstSource (BFS), the No,. 6 company on the ProSales 100, revealed it will acquire ProBuild, the No. 2 firm. BFS acquisition will create a $6 billion LBM giant that will leapfrog ABC Supply to the top spot on the ProSales 100. Today's operation would create a $2.6 billion company (that's based on 2014 revenues, while the press release puts the new company at $2.7 billion), big enough to put it No. 3 on the PS100 list.
The agreement calls for BMC shareholders to get 0.5231 newly issued Stock Building Supply shares for each BMC share they possess. (Stock is a publicly traded company while BMC is private.) Upon closing, BMC's shareholders will own roughly 60% of the merged entity and Stock's shareholders will have about 40%.
Jim Major, Stock's executive vice president and chief financial officer, will serve as CFO for the merged firm. Bryan Yeazel, Stock's chief operating officer, will become chief administrative officer and general counsel. Tony Genito, who holds the title of "chief integration leader" at BMC, will lead the integration of the two companies.
"The combined company will be headquartered in Atlanta and will have its main operating center in Raleigh, N.C., and plans to continue to operate under both the Stock Building Supply and BMC names in their respective local markets," the merger announcement said. The combination's roughly 8,500 employees work in 42 metro markets in 17 states through a total of 86 distribution locations, 33 truss and structures operations, 43 millwork operations, and several design centers.
The combined company also will be diverse in terms of sales revenue. Operations from the Mason-Dixon Line to Florida--most of them Stock's--currently provide 25% of the combined companies' sales. The West South Central census region--Texas for both companies, predominately--deliver 37%. Thye Mountain states--BMC is strong in Colorado, Idaho, and Montana, while Stock is big in Utah--provide 20%. And the Pacific region--where Stock has outposts around Los Angeles and Spokane, Wash., while BMC is mainly in northern California and Seattle--are home to 18% of BMC's and Stock's total sales.
The merger's champions said synergies from the deal could save the combined company $20 to $25 million in the first 12 months and $30 million to $40 million annually within two years. A slide show presented to analysts showed the merged company expecting to get 64% of those synergies from sourcing and the supply chain and 36% from reductions in selling, general, and administrative expenses as well as other costs.
"The continuing recovery of the U.S. housing market is expected to generate strong demand for building materials, services and solutions," Rea said in the merger announcement, "and together we believe BMC and Stock Building Supply are better positioned to capitalize on this opportunity."
Stock and BMC were two of the biggest companies to be undergo Chapter 11 bankruptcy-law reorganizations during the Great Recession half a decade ago. Stock, which had been owned by Britain's Wolseley Group, ultimately was acquired by Gores, a private equity fund, before going public. Gores still owns 38% of Stock's shares.
BMC, meanwhile, was largely owned by its lender, Wells Fargo, when the company formerly known popularly as BMHC emerged from Chapter 11 status. Alexander has said over the years that Wells Fargo stopped being the major shareholder years ago, but never identified who bought in. Today's announcement notes that three private equity firms--Davidson Kempner Capital Management LP, Robotti
& Company Advisors LLC, and MFP Partners LP--collectively own 52% of BMC today.