The continuing acquisition activity in the LBM segment is discussed by virtually everyone in the industry. Serial acquirers and mega deals dominate the headlines. However, an analysis of buying activity in the industry shows a broad base of potential buyers for companies along the entire size spectrum.
From the beginning of 2014 to the end of May 2016 ProSales tracked the acquisition of 149 companies, which operated just over 1,000 locations throughout the country. Of note, the BMC transaction with Stock Building Supply is categorized as a merger, so the Stock locations merged with BMC are not counted in these statistics. The nine most active buyers grabbed 52% of total acquisitions of companies, adding roughly 852 additional locations to their holdings. This equated to 84% of all locations acquired. The remaining 48% of companies and 16% of locations were acquired by all of the other companies in the industry.
When discussing LBM acquisitions, it is important to characterize them both in terms of the number of companies acquired and the number of locations acquired. An acquired company is headquartered in only one state but may have locations in multiple states. A state-by-state tally of those locations makes a much more interesting statement about the geographic appetite of acquirers.
So where did these acquisitions take place? Roughly 30% of all acquired locations were in the Midwest and 26% were found in the Southeast. The East Coast (13%), West Coast (12%) and South Central (11%) were the next most common home to acquired locations. The Mountain and Southwest regions contributed a combined 7% of all acquired locations.
Texas was home to the greatest number of acquired companies, with 12 acquisitions. Florida, Georgia, Michigan, and New Jersey were just behind Texas, with each state the headquarters of 11 acquired companies. Looking at the number of locations acquired, Texas set itself further apart from the pack, with 81 locations acquired during the period analyzed. Florida saw 69 locations acquired, followed by Wisconsin with 59 locations acquired and Michigan and Minnesota with 54 locations each.
Interestingly, Florida and Texas also made a very strong showing in the number of newly opened LBM locations over the period studied. They were home to 15 and 14 newly opened operations, respectively. North Carolina also saw 14 LBM openings, California had 11, and Georgia had 10 openings.
The mega deals in the industry garner the most headlines and spark discussion and speculation in the marketplace. However, they are not the only activity in the LBM segment. The average number of locations per acquired company in the past two and a half years was just under seven locations per company. Excluding the three deals that involved the greatest number of locations--ProBuild (335 locations), Norandex (103 locations), and Roofing Supply Group (83 locations)--the number drops to an average of just over three locations per acquired company.
Many of the LBM businesses acquired in the past two years have been one- or two-location companies. Indeed, even the largest and most active buyers in the industry will acquire a single-location company that is profitable, sells an interesting mix of products, and is located in a geographic area that is of interest to the buyer.
Just as the mega deals capture attention, the most active buyers also loom large in industry headlines. Over the period considered, U.S. LBM was by far the most active acquirer by number of companies, with 28 deals completed. ABC Supply and Beacon Roofing Supply racked up 15 and 12 acquisitions, respectively.
However, owners of LBM businesses seeking to be approached by a buyer benefited from a very broad base of buyers over the past two years. The previously mentioned 48% of acquired companies that were not bought by the nine most active buyers represented 71 separate acquisitions. These companies were bought by 54 different small and medium sized acquirers. Clearly, the majority of these buyers bought only one company each and a handful bought two other companies during the period analyzed.
What this means for owners of LBM businesses across the full revenue size spectrum is that there is likely a buyer out there for every well run LBM business in the country. That buyer may be on their way to a record setting number of acquisitions, or they may be completing that one transformative deal that will let them leapfrog a few spots on the ProSales 100 listing.