LBM Executives from American Construction Source (ACS), Kodiak Building Partners, US LBM, and BMC Stock Holdings joined Michael Collins, ProSales contributor and partner at Building Industry Advisors, last week, to discuss topics stemming from mergers and acquisitions in the LBM industry as part of an executive panel at the ProSales 100 Conference in San Antonio, Texas. James Drexinger, the CEO of ACS, Steve Swinney, the CEO of Kodiak Building Partners, LT Gibson, the president and CEO of US LBM, and David Flitman, the president and CEO of BMC, also discussed the importance of company culture, best practices from other industries, and their respective market outlooks.
The executives began by dispelling some merger and acquisition-related misconceptions, including the use of discounted cash flow for valuations and the composition of EBITDA multiple-based valuations. The panel also said that merger buyers rarely rely on head count reductions or facility closures in order to hit projected returns.
“Buyers are looking to grow and improve the business, not whittle away at it,” Swinney said. “We’re all in this to grow a business, and you don’t do that by getting rid of key people, who make things happen every day. You don’t do that by having less outlets to serve the customers.”
The panel also said while acquisitions are related to the core strategic plans of their companies and influence overall profitability, this does not replace an emphasis on organic growth or local market performance.
Each executive also stressed the importance of culture during the acquisition process. Gibson said US LBM looks for company cultures that will facilitate growth, and that culture is usually revealed by visiting locations and seeing how branches are managed and how employees behave. Swinney said it is important to understand your business’s composition and what your business wants; for Kodiak being locally driven and putting its employees first is of paramount importance. Flitman said it is important to invest in the right people to promote company culture. Drexinger said the development of people is an important aspect for ACS to promote through its acquisitions, looking at current recruitment and manager training programs as well as initiatives that promote safety.
Room for Improvement in LBM
The executives also shared several best practices currently being used by other industries that could benefit the LBM industry. Gibson highlighted technology as an area that is prevalent in other industries and is poised for a large role in LBM in the next several years.
“I think this industry is going to change more in the next ten years than it has in the past 100 years,” Gibson said. “People are constantly investing and looking at what’s next. There are some very powerful tools that have bettered other industries that we are just now testing the surface with.”
Swinney concurred, saying technology will drive innovation in the industry. He also highlighted the development of people as an area where the LBM industry could improve.
“Our industry is incredibly driven and reliant on people,” Swinney said. “Broadly in our space versus others I worked in in the past, we don’t spend enough time, energy, and thought developing our people.”
Drexinger said in addition to technology and people development, lean manufacturing is another area where the LBM industry can grow.
“The opportunities are still tremendous for lean deployment in the building materials space,” Drexinger said. “The other one I would share, it’s the underpinning of our strategic plan, is the high-performance organization. We need to continue to invest in our people.”
With several panels at the ProSales 100 Conference discussing potential market slowdowns in the near future, each executive spoke about how a potential slowdown impacts valuations in deals and their overall market outlooks. The executives said while slowdowns may impact company valuations, none said a potential slowdown would impact their investments during the next several years.
Drexinger said he does not anticipate a recession in the next 12-24 months, instead suggesting the industry may experience a soft patch for a soft period of time. Flitman said he remains bullish on the housing market in 2019. Swinney said while the economic outlook varies market to market, on a macroeconomic level, he’s expecting moderate short-term growth and a long-term positive road ahead. Gibson said he has a positive long-term market outlook and remains excited about the future for the industry.