What began as a fishing trip turned out to be a big catch for Fidelity Capital, the Boston-based investment firm that agreed last month to acquire Lanoga Corp. and merge the Redmond, Wash.–based company with The Strober Organization, forming a nationwide pro dealer chain that, with projected sales this year of $5 billion, could be the largest in North America.
Fidelity transacted this deal through a new entity called Pro-Build Holdings. Lanoga CEO Paul Hylbert and his counterpart at Strober, Fred Marino, will serve as Pro-Build's vice chairmen, and Marino also will be its CEO.
In 1997, Marino and Fidelity took Strober private, and since then South Plainfield, N.J.–based Strober has acquired several dealers along the Eastern Seaboard, building its business to 91 locations in 15 states. At the time of the merger, Lanoga operated six divisions with 320 locations in 24 states. Pro-Build will employ 14,000-plus workers and be headquartered in Redmond, Wash., although the managements, operations, and multiple store banners of Lanoga and Strober will remain intact, says Paul Mucci, Fidelity Capital's president, who will serve as Pro-Build's chairman.
Competitors and suppliers view this merger as a logical marriage that might signal larger dynamics within the pro dealer sector. Indeed, vendors attending last month's International Builders' Show in Orlando buzzed about a rumor that The Home Depot was close to buying St. Petersburg, Fla.–based Cox Lumber, with 29 yards and an estimated $350 million in annual sales. (The Home Depot spokesman Jerry Shields did not return a phone call requesting comment.)
What's driving all this consolidation is the parallel activity within the home building arena. “This deal allows us to pursue larger builders in most markets, without excluding the small builder,” says Marino. The merger also allows the companies to learn from each other's strengths: Hylbert points to the “strong relationships” Strober has cultivated with builder-customers, while Marino lauds Lanoga's market penetration through component manufacturing (its locations include 36 truss plants and 11 panel plants). Strober's merchants will be integrated into Lanoga's purchasing council. But Hylbert says Pro-Build would let each division determine its own inventory needs.
Both executives and Mucci believe that, as a larger entity backed by a well-capitalized investment firm, Pro-Build is in a stronger position to negotiate future acquisitions.
Fidelity and Laird Norton Co., which founded what is now Lanoga in 1855, started negotiating in March 2005. But the deal germinated in the summer of 2004, when Therma-Tru Doors CEO Carl Hedlund invited Hylbert and Marino on a trout-fishing vacation in Montana, where Hedlund owns a cabin. (Hedlund laughs about receiving a $1 finder's fee for his involvement.) During that trip, Marino broached the subject of Lanoga and Strober merging to Hylbert, who was interested but cautioned that Laird Norton—with 400 family members—has a “complicated ownership structure.”
As the similarities in the dealers' business models emerged, so did the fact that their market coverage overlapped in only one town, Mansfield, Ohio. Laird Norton bought in, and its CEO, Jeffrey Vincent, says this deal “makes sense to ensure the next phase of [Lanoga's] development and its continued ability to serve the professional contractor market.”
