Imagine you're at the beach on a day when the waves are coming in good and strong. Try to wade through the waves as they roll in and odds are you'll get battered. But dive to the bottom and the waves pass over you unharmed. The serenity below contrasts with the commotion above.
That's pretty much what I expect the upshot will be from all the deals we're seeing among the big lumberyards nationwide, particularly from the plan by Builders FirstSource (BFS) to acquire ProBuild. The deal is largely a play for the biggest builders, particularly the 10 companies that account for 0over 20% of all residential housing construction. BFS in particular gets 25% of its revenues from just 10 firms. Both BFS and ProBuild both say they get a noteworthy share of their business from the small builder, but that's not where they see much of their income coming from in the next few years; its component manufacturing (BFS even makes its own windows), millwork, and installed sales that are being counted on to power the growth. Therefore, if you hanker to win the same clientele, prepare for rough waters.
Meanwhile, those of you who go after smaller fish probably will see more benefit than harm from those big waves passing overhead. If you are in territory where BFS and ProBuild both operate today, you're already used to staying out of their way as they pursued larger customers. And given the likely closures of overlapping facilities, you could end up hiring some good people who quit or were let go. Meanwhile, dealers in smaller towns who have ProBuild competition--particularly in the Upper Midwest--could see those rivals shut their doors as the new BFS comes under pressure to prove its takeover of ProBuild has generated oodles of profit.
Suppose you're a smallish dealer exec who wouldn't mind selling out and retiring. Do all the deals going on these days mean it's a great time to cash in? Not necessarily. The lumber roll-ups are looking for more size than generally can be found at a one- or two-yard operation. Your more likely buyer in those cases is the guy in the next market who wants to stay in the game and already knows yours. Such deals don't get much attention, but they happen more frequently than you might realize.
On the specialty side, the trend isn't so much about consumption as it is about subsuming small roofing and drywall dealers into Borg-like collectives. Don't expect golden handshakes here; rather, your new masters seek to plug you into a bigger organization in which you're expected to keep working hard, but with potentially greater results stemming from the efficiencies that a big organization provide.
Differences in geography, target market, operating style, and end objectives all help make every LBM operation different. How the latest deals will affect you depends on where and whether you stand when the waves arrive. Just remember that while they vary at times in size, they won't ever stop.