MERGERS & ACQUISITIONS: The Stars are Aligned

It’s hard not to use clichés to describe how good today’s business environment is for companies wishing to sell their lumberyards, distribution centers, or building material companies.

But truly, the stars are aligned now in a way that is rare (especially given the cyclical nature of our industry), and—more importantly—it’s not going to last forever. It may not even last 12 to 18 more months. Couple this information with how long it can take to get prepared to sell and get a deal done (typically eight to 12 months in the best case scenario), and we’re looking at a very short window of opportunity.

Are we the only M&A advisors who think this? No. It’s evident to anyone who closely watches the industry. Look to the owners of the largest LBM dealers: ProBuild is selling to Builders First Source, and US LBM is for sale after a long series of purchases. Both sellers are owned by sophisticated, institutional investors. These groups understand how windows open and close; they’re choosing to take advantage of it.

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Why The Timing is Right: 4 Reasons
What makes the business environment so advantageous to buying and selling LBM companies?

1. First, there’s money available, and a lot of it. This hasn’t been the case for almost a decade. Private equity firms with dry powder see investments with exposure to the housing recovery as a logical buy low, sell high opportunity. Industry firms are getting healthier, and balance sheets are improving. Debt capital is also readily available and very inexpensive—with interest rates at or near historic lows. As interest rates rise—and they will surely rise in the future—that will put a damper on a buyer’s appetite for a deal. Even a 1% increase in rates adds up to real money when someone is borrowing millions for an acquisition. Buyers who are flush with cash create demand for deals.

2. The second reason has to do with timing. We are at that sweet spot with five years of good historical growth and forecasters thinking that the housing market should have a few more years of good run ahead of it. Once we are at or near the peak of the housing market, the number of buyers will dwindle and hence reduce demand for LBM businesses. Buyers want to acquire LBM companies with some “runway,” so they can take advantage of the upside in housing activity as the new owners.

As the expression goes, “you’ve gotta leave some juice in the orange” for the new owner. Right now, there is plenty of juice left with a couple of years or so of housing tailwinds before having to deal with potentially softer markets. Buyers who are flush with cash, who feel the timing is right, equals demand for deals.

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