Builders FirstSource, Inc. (BLDR - Free Report) and BMC Stock Holdings, Inc. (BMCH - Free Report) have inked an all-stock merger deal to create the nation’s premier supplier of building materials and services. Notably, shares of the companies grew 8.4% and 22.4%, respectively, on Aug 27, post the news release.
Terms of the Deal
Per the agreement, the combined company will operate as Builders FirstSource, headquartered in Dallas, TX, and carry out key corporate functions from Raleigh, NC and Denver, CO. Notably, the transaction is expected to close in late 2020 or early 2021, subject to certain conditions.
The deal will give BMC shareholders 1.3125 shares of Builders FirstSource common stock for each of share of the former. On a fully-diluted basis, the existing Builders FirstSource shareholders will have approximately 57% of the combined company, while BMC shareholders will own about 43%.
Post the completion of the transaction, the new company will have approximately 26,000 team members, a leading network of 550 distribution and manufacturing locations in 42 states (covering most of the fastest growing regions), and have the ability to generate sales of more than $11 billion along with $130-$150 million of annual cost savings within the next three years. The trailing 12-month adjusted EBITDA of $950 million (ended Jun 30, 2020) and combined net debt-to-adjusted EBITDA of 1.4x will support the upside.
BMC’s distinct millwork capability, READY-FRAME offerings and other manufactured products will complement Builders FirstSource’s strength in trusses and manufactured components, among other offerings. Aided by value-added product and service capabilities already shared by both the companies, these offerings will represent 43% of the combined company’s sales.
In addition to these benefits, the new company will be now be able to access 44 of the top 50 metropolitan statistical areas that will provide a wider set of opportunities, and deeper resources for organic as well as inorganic growth. Also, it will be able to invest more in innovation and develop targeted solutions that will be provided by highly-skilled team members. This will enable the company to provide best-in-class service to customers as well as communities.
About Builders FirstSource
Builders FirstSource — a Zacks Rank #1 (Strong Buy) company — is one of the largest U.S. suppliers of building products, prefabricated components, and value-added services to the professional market segment for new residential construction as well as repair and remodeling. The company generated $3.7 billion of total net sales in first six months of 2020, up 5.6% from a year ago. The uptick was driven by a 1.2% increase in commodity price inflation, 3% contribution from acquisitions and 0.6% core organic sales.
It witnessed growth in value-added product volume, led by strong Windows, Doors, and Millwork product, as well as in the repair and remodel/other category. Adjusted earnings also rose 4.1% year over year to $1.02 per share, backed by 190 basis points (bps) growth in adjusted EBITDA margin.
Liquidity as of Jun 30, 2020 was $1.2 billion, including $817.8 million available under the revolving credit facility and $385.5 million cash on hand.
BMC’s Performance Highlight
BMC — one of the nation’s leading providers of diversified building materials and solutions to new construction builders and professional remodelers — registered net sales growth of 7.3% for first-half 2020. Of the total, acquisitions added 5.1%, organic growth contributed 1.2%, price inflation within the lumber and lumber sheet goods and structural components product categories, along with an additional selling day accounted for 0.8% each. Adjusted earnings per share also grew 16.7% from the year-ago period, driven by 80 bps growth in adjusted EBITDA margin.
As of Jun 30, 2020, its total liquidity was $615.7 million, including $253.4 million cash and cash equivalents, and $362.3 million availability under the asset-backed revolving credit facility. The company expects third-quarter net sales growth to be 5-10% year over year.
The company, which shares space with Fastenal Company (FAST - Free Report) and Beacon Roofing Supply, Inc. (BECN - Free Report) in the Zacks Building Products - Retail industry, currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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