Fidelity Capital-owned Pro-Build Holdings, the Boston-based parent company of Redmond, Wash.-based Lanoga Corp. and South Plainfield, N.J.-based The Strober Organization, announced June 16 that it will acquire Hope Lumber and Supply Co., adding the Broken Arrow, Okla.-based pro dealer to a swelling portfolio that is still absorbing the 2006 first-quarter acquisitions of Lanoga, F.E. Wheaton, and Wolohan Lumber. After the Hope transaction officially closes in July, Pro-Build will operate nearly 500 locations in 40 states with 2006 sales projected to top $6 billion.
Hope Lumber and Supply--which itself acquired Kennesaw, Ga.-based Leeds Building Products in February 2005--reported 2005 gross sales of $1.036 billion. The company serves a relatively equal mix of production builders and custom home contractors from 45 lumberyards and five component plants across nine Southern and Southeastern states, an area where Pro-Build previously had little market coverage. "The primary excitement around the Hope acquisition is the nearly keystone fit that it puts geographically between Strober and Lanoga," Pro-Build CEO and vice chairman Fred Marino said June 19 during a conference call with PROSALES. "An important part of our strategy is to be operating full-line lumber companies that include truss and millwork manufacturing, and we are also in good standing with Hope in that regard."
According to a press release announcing the deal, Pro-Build is committed to a "very aggressive" strategy and has experienced significant growth in 2006. Both Marino and Fidelity Capital president Paul Mucci were quick to explain to PROSALES that the Pro-Build plan is to gain a geographic footprint for supporting national production builders while continuing to develop value-added manufacturing services for tract and custom contractors alike. "There is always an advantage of speed in executing any strategy, and I think that lies at the core of our thinking," Marino said. "Our strategy is fairly obvious, and the longer we wait, the more opportunity we give to competitors to emulate that strategy."
Marino and Mucci dismissed recent speculation that Pro-Build is being developed for eventual liquidation to a target buyer such as Atlanta-based The Home Depot. "That question comes up quite frequently," Mucci said, "but we have always approached our investments from the long-term mentality at Fidelity Capital. Whenever you have the opportunity to position yourself as we have here to be the top player in the market, it behooves you to continue to press and invest for the long term. We are not 'buy and flip,' we don't have a five- or seven-year horizon, and we don't have any other partner--all of which gives us the opportunity to think about things long term."
That characterization of Pro-Build's strategy is right on the money, says Keith Hughes, an independent Wall Street analyst who covers the pro dealer sector for Atlanta-based investment banking firm SunTrust Robinson Humphrey. "There is no private equity firm on earth that is trying to build up a business to sell it to one other company," Hughes says. "I'm not saying that won't happen, but nobody in their right mind sets out with that as their basic strategy." Hughes adds that while he expects continued consolidation among pro dealers, he thinks Pro-Build will likely pause momentarily to digest some of its acquisitions.
"We agree that we have a lot of work to do," Marino said of the continuing assimilation of Lanoga, Wolohan, Hope, and others into the Pro-Build entity. "But we think it is entirely manageable within the context of our overall philosophy about the business itself. There's no question that we have an aggressive growth strategy, but we operate in a decentralized fashion, and that allows us to time the integration of companies if we so desire, as well as make judgments about how much integration we really want to seek."
According to Marino, Hope will operate as an independent division of Pro-Build. Negotiations to keep Hope top management, including CEO Jim Cavanaugh, on board are still pending, he said.