We may be as late as the seventh-inning stretch in the current economic cycle, but there’s still plenty of dealmaking for LBM operations yet to come. That’s one of the conclusions you can reach from the comments made by four top construction supply executives on March 2 at the ProSales 100 Conference in San Antonio.
I had the honor of moderating the panel discussion that featured Chad Crow, CEO of Builders FirstSource; Ruben Mendoza, CEO of Foundation Building Materials; Steve Swinney, CEO of Kodiak Building Partners; and Dave Dittmer, CEO of TAL Holdings, a dealer in the Pacific Northwest that grew substantially through acquisitions last year. The consensus among these active acquirers and thought leaders was that we are headed for several strong years in the industry.
Along with the ProSales staff's general coverage of the conference, here are my other key takeaways from the M&A panel:
* The panelists agreed that it is impossible to make broad statements regarding the EBITDA multiple at which a company should be valued. For most LBM distributors with one or a few locations, consensus among the panelists leaned toward a range of 4-6 times EBITDA. Larger companies and those with a compelling strategic fit for the buyer will gravitate toward the higher end of that range.
* Asked about favorite economic indicators, these industry experts are watching housing permits for signs of continued health and have begun to place greater emphasis on interest rate movements and changes in the prices of commodities, such as steel and oil, as indicators of overall activity and inflation. Mendoza forecasts growth utilizing an internal model drawn from external research and refined by the insights of his management team.
* Cultural fit was a commonly repeated theme when our panelists described their ideal acquisition. Each was willing to walk away from a deal when the acquired company’s culture would clash with the buyer’s own.
* Among the most emotional challenges facing sellers are the need to ensure the safety of the legacy they’ve built and the welfare of their employees. The panelists agreed that trust, openness, and transparency were required to provide owners with comfort. Swinney recommended an approach of “trust but verify” in talking to other companies acquired by a given buyer. Crow recommended making any needed changes immediately following an acquisition, when they are the most expected.
* Lack of labor was cited often, with greater shortages seen at the contractor level than at the distribution level. Truck drivers were reported as universally difficult to attract and hire.
* At the management level, Dittmer shared that he values a deep management bench in an acquired company so those individuals can contribute to the talent pool of the larger organization.
The session generated far more questions than could be answered during the 90-minute session. I will address some of them soon in another column.
