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TopBuild (BLD) to Acquire Distribution International for $1B

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TopBuild Corp. (BLD - Free Report) has inked a deal with global private equity firm Advent International to acquire the latter’s Distribution International (“DI”) for $1 billion in cash. The transaction is expected to close in fourth-quarter 2021, subject to customary closing conditions.

President and chief executive officer of TopBuild, Robert Buck, said, “Following the closing of this transaction, TopBuild will be the leader of energy saving insulation solutions in all three major end-markets: residential, commercial, and industrial. Increasingly stricter energy codes, and the desire for energy efficient solutions and reductions in carbon footprint are driving demand, and we expect they will continue to be important growth drivers for our Company.”

DI, which was founded in 1986, is the leading specialty distributor of mechanical insulation solutions for industrial and commercial end markets. Over the past six years, DI has expanded its market share through 11 acquisitions. Currently, it has 84 branches across the United States and 17 in Canada. In the last 12 months, half of DI’s pro-forma revenues of approximately $747 million were tied to the Maintenance, Repair and Operations (“MRO”) business, and the other half was related to new construction activity.

This bolt-on acquisition highly complements TopBuild’s strategic alliances for bolstering inorganic growth and expanding market share. On a further encouraging note, DI will help TopBuild with a direct entry and immediate leadership position in the $5-billion mechanical insulation market. Also, DI’s MRO business provides a strong recurring revenue stream and fabrication capabilities offer additional value-add services for customers.

TopBuild expects $35-$40 million synergies from this buyout in a year, following the close of this transaction. On Jun 30, 2021, the combined company generated trailing 12-month revenues of $3.93 billion and adjusted EBITDA of $647 million, on a pro-forma basis, inclusive of expected run-rate synergies of $35-$40 million.

Post the transaction’s completion, TopBuild’s net debt to pro forma adjusted EBITDA is expected to be 2.5 times pre-synergies.

Acquisitions Bode Well

Acquisitions are an integral part of TopBuild’s growth strategy. In the past six years, TopBuild has acquired 26 companies that are contributing more than $820 million to annual revenues.

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Recently, it acquired a fabricator and distributor of gutter products and specialty metals, Valley Gutter Supply, for an undisclosed amount. This addition helped the company strengthen Service Partner’s gutter fabrication and distribution capacity throughout the state of California.

Also, it acquired Creative Conservation, a residential and light commercial company. Creative Conservation serves customers across Richmond, Charlottesville, Roanoke and Northern Virginia regions, and has a business history of 40 years. Its installation line of business is uniformly split up between fiberglass and spray foam.

Shares of TopBuild have increased 16.8% in the past three months against the industry's 1.4% fall. The solid price performance was primarily backed by strong earnings growth over the last several quarters. This installer and distributor of insulation and other building products has been banking on strategic acquisitions, strong Insulation Installation business, and strengthening repair and remodeling activities. Also, solid prospects across the business and operational efficiencies are likely to help the company drive growth.

Zacks Rank

TopBuild — which shares space with Installed Building Products, Inc. (IBP - Free Report) , Advanced Drainage Systems, Inc. (WMS - Free Report) and PGT Innovations, Inc. (PGTI - Free Report) in the same industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.