Builders FirstSource (BFS) and BMC Stock Holdings have entered into a merger agreement, uniting the third- and fifth-largest dealers on the ProSales 100 list. Combined, the companies will create a building materials supplier with over $11 billion in annual sales and a network of 550 distribution and manufacturing locations across 42 states.

Under the terms of the agreement, which has been unanimously approved by the boards of directors at both companies, BMC shareholders will receive a fixed exchange ratio of 1.3125 shares of BFS common stock for each share of BMC common stock. When the merger is complete, existing BFS shareholders will own approximately 57% and existing BMC shareholders will own approximately 43% of the combined company on a fully diluted basis.

Once the transaction closes, which is expected to occur in late 2020 or early 2021, Chad Crow, president and CEO of BFS, will serve as CEO of the combined company for a period of 90 days. After 90 days, Crow will retire, as previously announced, and Dave Flitman, current president and CEO of BMC, will succeed Crow as CEO of the combined company.

“This is a transformational opportunity that unites two outstanding and complementary companies, providing enhanced scale and superior returns as we build upon a new, larger platform,” Crow said in a news release. “Builders FirstSource and BMC together will have a very diverse portfolio of value-added offerings and greater resources to more closely partner with and serve customers.”

Five years ago, BFS took part in another blockbuster LBM merger with its $6.1 billion acquisition of ProBuild. At the time, the deal made BFS the largest pro-oriented lumber and building materials supplier in the United States. BMC also has experience with large LBM mergers, as the dealer combined with Stock Building Supply in 2015, a deal that combined the then ninth- and tenth-largest dealers in the nation.

“We believe this strategic combination of two great organizations is an exciting step forward for both BMC and Builders FirstSource, as well as for our associates, our customers, and other key stakeholders,” Flitman said.

As a result of the merger, the combined company will expand its value-added offerings, which will represent approximately 43% of the combined company’s sales. BMC’s millwork capability, READY-FRAME offerings, and other manufactured products will complement BFS’s strengths in trusses and manufactured components to enable further penetration of key segments, according to the news release announcing the merger.

The combination is also expected to generate approximately $130 million to $150 million in annual run-rate cost savings within three years and accretive to adjusted diluted EPS accretion in year one.

Following the closing of the transaction, the combined company will operate under the name Builders FirstSource and will be headquartered in Dallas, Texas. The combined company will also maintain key functional corporate centers in Raleigh, N.C., and Denver, Co.

Peter Jackson, the current CFO of BFS, will serve as CFO of the combined company. Dave Rush, COO of BFS’s east region, and Jim Major, CFO of BMC, will lead the transaction and integration of the combined company. Rush led the integration team for BFS after its ProBuild acquisition.

Upon closing, the combined company will have a 12-member board of directors consisting of seven members from the BFS board and five members from the BMC board. Paul Levy, co-founder and current chairman of the board of BFS, will serve as chairman of the board of directors of the combined company.

BFS recently reported net sales grew 2.2% year-over-year (YOY) to $1.9 billion in the fiscal second quarter. The dealer also reported net income increased 18.5% YOY to $78.9 million. BMC reported a record net income of $43.6 million in the second quarter and net sales of $979.9 million.