Opportunity knocks: whether you're looking to buy or sell a business, the market is hot

Prosales, Dec, 2003 by Lisa Clift

Right now the stars definitely are aligned for residential construction. Business is booming, interest rates are low, and construction spending is at an all-time high. It's a robust market by all accounts--and in the construction supply industry success has translated into a flurry of buying and selling activity in recent months.

The decision to sell the business is not always an easy one for a pro supplier to make, yet more and more dealers seem to be opening the door when opportunity knocks. Suppliers making acquisitions include not only dealers swallowing up small- and medium-size chains but also companies like Elgin, Ill.-based Seigle's Home & Building Center and San Francisco-based BMHC that are now venturing into new construction services markets.

There's no single factor that's responsible for the current upswing in M&A activity; rather, it's a combination of being in the right place at the right time in a strong business economy. At least that's what we found when we asked contributing writer John Caulfield, a 20-plus-year veteran of the construction markets, to go behind the scenes and investigate why some companies are cashing out and others are bucking up to buy (see page 26).

Increasingly, he found, many independent dealers believe that the right place to be is aligned with one of the large dealer conglomerates that are jockeying to keep up with the big builders' continued geographic expansion. Two of the latest independents to join their ranks are Dixieline Lumber in San Diego (which was acquired earlier this year by Lanoga) and Franklin, Ind.-based Davidson Industries (recently purchased by Builders FirstSource [BFS]).In Davidson's case, for example, BFS offers an opportunity to significantly grow Davidson's $60 million organization, which is the leading truss producer in Indianapolis, executive vice president and general manager Alan Vander Meet relayed to us when the announcement was made in early October. Other independent dealers we spoke with view this type of strategic alignment as the only way to compete long-term for big builder business.

If you've been considering selling your business or acquiring a new one, now could be the right time for two reasons. First, the apprehension and emotional distress caused by the terrorist attacks of September 11 have waned, leaving companies and individuals feeling more confident and stable. Next, the dust has settled from the M&A fever that engulfed the industry several years ago, when major powerhouses including Stock, BFS, and Lanoga bolstered their ranks with gusto;growing companies have had time to assimilate what they've bought, align computer systems and inventory, and get sales structures in order.

Finally, it's a good time to wheel and deal because building activity is at an all-time high. The September 2003 construction numbers released by the Commerce Department on November 3 indicate that the market is nothing short of red hot. The seasonally adjusted value of in-process building was $910.6 billion--a 1.3 percent jump from the previous month. The value of all spending on private construction in September was $690.6 billion, and residential construction came in at a seasonally adjusted rate of $471.4 billion. Plus, according to a November 3 report by the Associated Press, the economy grew at a "breakneck" 7.2 percent annual rate in the third quarter of this year, and it's expected to grow at a rate of 4 percent this quarter.

Not a bad way to close out the business year.

Lisa Clift, Editor

202.736.3307

lclift@hanley-wood.com