Dallas-based Builders FirstSource is buying a smaller North Carolina rival in an all-stock deal that creates an $11.2 billion-a-year supplier of building materials.
The deal to buy BMC Stock Holdings Inc. of Raleigh will close the gap between Builders FirstSource and No. 1 building materials supplier ABC Supply Co., according to a regulatory filing Thursday. ABC Supply’s annual sales are $11.7 billion.
Builders FirstSource will remain headquartered in Dallas, but CEO Chad Crow will retire and turn over leadership to BMC CEO Dave Flitman after a 90-day transition when the deal closes, the companies said. Crow, who joined Builders FirstSource in 1999, announced his plan to retire in January once a successor was selected.
BMC shareholders will receive 1.3125 shares of Builders FirstSource common stock for each share of BMC stock, valuing the deal at $2.46 billion. When the deal closes later this year or early next year, Builders FirstSource shareholders will own 57% of the combined company.
RBC Capital Markets analyst Michael Dahl said the deal price “appears reasonable,” representing a 14% premium over BMC’s closing price on Wednesday.
The combined company will have a market value of $5.5 billion and 26,000 employees, the companies said. The deal is expected to produce annual cost savings of $140 million by the third year of the merger.
Builders FirstSource, already the nation’s second-largest building materials supplier, enters the deal with $7.5 billion in annual sales through 400 locations across the U.S. It will add BMC’s 150 locations with $3.8 billion in sales.
“Together, we have an expansive geographic footprint and enhanced local relationships in attractive high growth markets,” Crow said in a conference call with analysts. “The combined company will benefit from greater geographic reach and diversity with what is still — within what is still a very fragmented industry.”
With homebuilding booming across the nation, Builders FirstSource’s geographic footprint will grow to 42 states and encompass 44 of the nation’s top 50 metropolitan areas, including many fast-growing regions.
In July, new home sales in the U.S. jumped to the highest level in almost 14 years as low mortgage rates helped fuel a construction boom.
Purchases of new single-family houses climbed 13.9% from June to a 901,000 annualized pace from an upwardly revised 791,000, government data showed Tuesday. The median selling price rose 7.2% from a year earlier to $330,600.
Sales of new houses have taken off during the pandemic because borrowing costs have never been lower and listings for previously owned homes are in short supply.
Three out of four major U.S. regions showed higher sales of new homes in July. Purchases surged 58.8% in the Midwest, climbed 13% in the South and 7.8% in the West. Sales fell 23.1% in the Northeast.
Flitman told analysts the strength of the housing market has been a bright spot in 2020, despite the pandemic.
“The housing market has proven to be resilient with annualized housing starts rising by a double-digit percentage,” he said. “The pent-up demand from new family households and the significant under-building of single-family homes … over the past decade support our belief that long-term housing fundamentals remain fully intact.”
Both companies also have “strong track records of accelerating growth through M&A,” completing a combined 21 acquisitions in the last decade, Crow said. In 2015, BuildersFirst Source acquired Denver-based ProBuild in a $1.63 billion deal that more than tripled its annual revenue.
Flitman will be required to relocate to Dallas as part of his employment agreement, according to a regulatory filing after Thursday’s market close. He’ll be paid a base salary of $1,050,000 and a yearly bonus of up to $2.1 million. He’ll also receive $4.8 million in equity grants in March, along with $2 million in time-restricted stock.
Bloomberg contributed to this story.