Power plays: after a year of relative inactivity, the consolidation game is heating up as top 10 dealers jockey for industry positioning

Prosales, July, 2003

From buyouts of regional independents to store swapping on the national level, the bigwigs of residential construction supply are at it again. Following stalled activity in 2002 due in part to post-September 11 concerns and an overall economic slowdown, acquisitive firms have loosened the shirt collars in 2003, and the pressure is on as traditional lumberyards, specialty distributors, and even framing contractors are feeling the purchasing might of the nation's larger pro suppliers.

Leading the charge is Redmond, Wash.-based Lanoga Corp., which announced May 7 that it reached an agreement to purchase San Diego-based powerhouse independent Dixieline Lumber, which will become Lanoga's fifth operating division alongside Home Lumber, Lumbermens, Spenard Builders Supply, and United Building Centers. Dixieline, which posted 2002 gross sales of $243 million, serves a customer ratio of about 80 percent pro contractors to 20 percent consumers, a complementary match with Lanoga's overall focus.

"We think it's a very good fit," says Lanoga CEO Paul Hylbert. "[Dixieline president and CEO] Bill Cowling and the entire organization have done a great job creating a culture and a lumber operation that is one of the finest in the country."

In addition to the Dixieline deal, Lanoga acquired three Homesteader's Cache operations in Alaska on March 25, not to mention grabbing 31 lumberyards and three component plants from Vernon Hills, Ill.-based Wickes on Oct. 30, 2002. "Our divisional structure has allowed for a lot of flexibility in absorbing the acquisitions," notes Hylbert. "Wickes, for example, was very similar to United Building Centers, so that transition has worked well."

Merger and acquisition lexicon is becoming increasingly familiar speech for Wickes following the Lanoga deal. After reporting the receipt of a takeover bid from Avenel, NJ.-based pro supplier and Wickes minority shareholder Bradco Corp. on April 3, the embattled pro dealer announced the following day that it had reached an agreement for minority shareholder Imagine Investments to purchase a controlling share of the company. On April 18, 2003, Wickes announced that--despite Bradco upping the takeover ante from $1.12 to $1.46 per share--Imagine was not interested in the deal.

With the Imagine buyout, Wickes chairman and CEO J. Steven Wilson was replaced by Jim O'Grady, who was senior vice president of operations for Wickes until departing May 2002 for the same post at Broken Arrow, Okla.-based Hope Lumber & Supply Co. Wickes plans to retain all other senior managers, including CFO James Hopwood, who indicated that the company is considering an eventual rollout of an employee stock ownership plan.

While Bradco CEO Barry Segal and president Brad Segal were unavailable for comment on the takeover fallout, it seems the pro supplier is still hot on the acquisition front. An entire section of the firm's Web site is dedicated to acquisition possibilities through Bradco, including case studies and details on the firm's merger and acquisition procedures. "At Bradco, we are highly experienced in making acquisitions," the site says. "As we employ an in-house attorney, we can quickly generate and process contracts. In many instances, we have actually closed on a deal within three to four weeks after the initial contact."

Keep It Coming

Bradco is definitely not alone on the growth chart. Big expansion seems to be the name of the game looking at the 2003 consolidation track records and plans of the largest companies on the supply side. After posting a press release on its Web site in October 2002 detailing the company's acquisition philosophy and offering a contact number for interested parties, Raleigh, N.C.-based Stock Building Supply closed a deal on Jan. 17 to acquire 10-unit Wenco Distributors of Texas, a window and door distributor that was owned by Jeld-Wen.

At the organic end of the spectrum, Eighty Four, Pa.-based 84 Lumber continues on its quest to overtake Stock as the undisputed No. 1 pro dealer in the land. "We'll do our share to keep things interesting," says Frank Cicero, 84's vice president of operations. "We're planning on opening 20 new units this year." In the first five months of this year, 84 was well on pace, with eight store expansions in February and new yards in Franklin, Tenn., Huntsville, Ala., and Milford, Del., opening for business on April 25. The company also has plans underway for three new yards in Augusta, McDonough, and Cartersville, Ga., as well as two new component plants in Indianapolis and Atlanta under the umbrella of 84's Production Builder Services division.

Also expanding on the services front is San Francisco-based Building Materials Holding Corp. (BMHC), which continues to purchase controlling interests in large-scale framing operations, most recently with the 51 percent purchase of Dixon, Calif.-based Sanburn Construction (now operating under the name Norcal) in June 2002, and a 60 percent buy in to Fort Lauderdale, Fla.-based Willard Bros. Construction on Jan. 27. Both transactions are put/call arrangements where an eventual total BMHC buyout is a foregone conclusion.