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Beacon Buys Structural Materials

WFC BECN

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Beacon Roofing Supply, Inc. (BECN - Analyst Report) has completed the purchase of Structural Materials, Co., a distributor of residential and commercial roofing products and related accessories. The financial terms of the deal were undisclosed.

California-based Structural Materials distributes residential and commercial roofing products and related accessories. The company operates through six locations in Los Angeles and Orange Counties and the neighboring areas and generated nearly $81 million revenues in 2011.

The strategic acquisition will augment the existing product portfolio of Beacon Roofing in the lines of roofing products as well as related accessories. Moreover, Beacon Roofing will get the opportunity to fortify its customer base by catering to the potential markets of South California.    

The purchase was also in line with Beacon Roofing’s strategy to acquire leaders in the potential markets. Earlier, in May 2012, Beacon Roofing acquired the leading wholesale distributor of building products, Cassady Pierce Company.  

The acquisition of Cassady Pierce expanded the business of Beacon Roofing in the unexplored regions of Pennsylvania, in addition to bracing up its building materials product portfolio.

Beacon Roofing has recently entered into a new five-year senior secured credit facility that includes a $550 million U.S. credit facility and a C$15 million ($15.1 million) Canadian credit facility with Wells Fargo Bank, National Association, an unit of Wells Fargo & Company (WFC - Analyst Report).

The new credit facility refinanced the company’s prior $515 million credit facilities that were provided through GE Antares and an affiliate. The interest rates of the new credit facility are at historically low levels. It provides an attractive LIBOR margin pricing, low interest rates, reasonable financial covenants, as well as substantial liquidity and financial flexibility for the company to pursue acquisitions and growth opportunities.

Beacon Roofing’s growth strategy largely depends on acquisitions, the primary growth driver since its inception. The company, therefore, faces challenges from acquisition related risks. For instance, management may have trouble finding suitable acquisition candidates that provide synergies in existing markets and upfront earnings accretion.

Beacon Roofing retains a short-term Zacks #1 Rank (Strong Buy). We have a long-term Neutral recommendation on the stock.
 

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