Amazing feats: last year everyone thought it couldn't get much better, but the 2005 PROSALES 100 proved us wrong

Prosales, May, 2005 by Lisa Clift

Last May we hailed the PROSALES 100 as having a "record year," with many companies posting all-time highs. The group's collective sales in 2003 were up 14.2 percent over 2002--totaling $29 billion. When we completed the survey in March 2004, there was a lot of buzz about continued growth the second half of the year, but overall the participants in the PROSALES 100, our annual ranking of the nation's leading construction supply companies, took a prevailing stance of cautious optimism. What an understatement that turned out to be.

When we tallied up the results for this year, which are based on 2004 sales, the final numbers blew the roof off of last year's gains (see page 74). Overall sales for the collective PROSALES 100 reached $37 billion in 2004, a 27.6 percent increase year over year. Moreover, 95 firms on this year's list posted double-digit growth, with the high mark set at 170.8 percent. Underlying the sales explosion, a couple of trends emerged as primary catalysts fueling growth and expansion:

Merger and acquisition activity is on fire. In last year's survey, the PROSALES 100 predicted acquiring 111 facilities looking forward to 2004, but the group far exceeded that number by 50 for a total of 161 locations acquired. And the push has continued this year: There was so much M&A activity to report this month alone that we even added special coverage to our ProWatch and Yard Notables columns (see pages 40 and 46) announcing acquisitions by Hope Lumber, Lanoga, ABC Supply Co., and others. And in the time since the survey was completed at the end of February, another noteworthy deal hit the press: Stock Building Supply, which holds the No. 1 spot on the PROSALES 100 once again this year, acquired Franklin, Ind.-based Davidson Industries, a leading dealer serving the Indianapolis market with $65 million in 2004 sales. This development follows on the heels of Builders FirstSource pulling out of an arrangement to purchase the company last year, which was motivated in part by an analysis of Davidson's numbers during due diligence, according to several industry analysts.

Overall, it's expected that mergers and acquisitions will continue at a healthy clip this year, with large-scale buyouts likely taking a backseat to smaller, strategic purchases similar to the Stock/Davidson deal. When I asked Nicholas V. Beare, managing director of the building products division at Stephens Inc., an investment banking and mergers and acquisitions firm, what he sees in the crystal ball for 2005, blockbuster deals were not among his predictions. Overall, pricing has been up and the housing market should remain strong, barring no sudden interest rate hikes, which means solid independent companies looking to cash out are well-positioned. Moreover, Beare told me, pro dealers on average have become much more efficient over the past couple of years, which only sweetens the pot for potential buyers.

The big keep getting bigger. No doubt, the companies on the PROSALES 100 are continuing to extend their networks, both through acquisitions and organic growth. Expansion plans are indeed hot, with 76 percent of the group planning to branch out in same geographic region and 33 percent planning to enter into another geographic region over the next five years. In comparison, only 5 percent of the companies on the PROSALES 100 have no plans to expand. At the same time, in 2004, nine companies passed the billion-dollar sales mark (up from six last year), and Hope Lumber's recent acquisition of Leeds puts the company on track to join the club in 2005. Strong pricing definitely contributed to the boon, but the overall gains are amazing feats nonetheless. No doubt there is more to come as we enter the second half of 2005.

Lisa Clift, Editor

202.736.3307

lclift@hanleywood.com