Investor group buys Cameron Ashley - Brief Article

Home Channel News, Feb 7, 2000 by Jason Gonzalez

Senior managers, two investment firms will take the distributor private

DALLAS -- During the past five years, Cameron Ashley Building Products has been the poster child for growth among building material distributors. During that period, its sales doubled to $1.1 billion as of last year, its annual net income averaged $13 million and it added two dozen branches to more than 160 units as it built a distribution network across North America.

Those gains, though, had little positive effect on the company's stock price, which has stalled at around $15 per share. For that reason primarily, officials from Cameron Ashley last month agreed to sell the company to a group of senior-level managers and two private investment firms for an estimated $320 million, which included the assumption of $182 million in Cameron's debt.

On Jan. 18, Cameron Ashley announced that it has entered a definitive agreement with its senior managers, CGW Southeast Partners and Citicorp Venture Capital Ltd. The investment consortium would buy back all outstanding shares at a price of $15.10 per share. That price, the company stated, is 35 percent higher than the stock's closing price on Jan. 14, when it reached $11 3/16.

"We believe in the merits of the transaction and feel it is in the best interests of our shareholders," Ron Ross, Cameron Ashley's chairman and CEO, said. The move came after years of the company's trying to push the stock price out of the $11- to $15-per-share rut in which it was stuck. "No matter what we did, earnings-wise, it didn't budge. We turned a profit every year. We met Wall Street projections. We bought back 750,000 shares. It didn't do anything," Ross lamented.

Ross explained that last summer Cameron Ashley's shareholders began demanding he do something to boost the stock's value. "If your company is not getting fair shareholder value, as CEO you've got to do something," he said.

As a large building materials distributor, Ross said he didn't see many options for his company. Potential channel conflicts made a merger with a manufacturer unlikely. There weren't any distributors that were both large enough and interested enough to join forces. Merging with a lumberyard chain, such as Carolina Holdings or Builders FirstSource, was a possibility, but Ross felt such a deal was "ahead of the market."

The only alternative, he determined, would have to come from the drawer full of proposals that Cameron Ashley received from various investment bankers and venture capital firms that specialize in undervalued companies. This tack led him to turn to one of Cameron Ashley's longtime shareholders and one of the companies responsible for its spinoff from CertainTeed in 1991.

CGW Southeast Partners is a private equity fund that owns 11 percent of Cameron's outstanding stock and is managed by the Atlanta-based financial firm Cravey, Green & Whalen, Inc. In 1991, that firm partnered with Ross and other CertainTeed managers to purchase the then Cameron division. The Atlanta firm separately did the same thing with Ashley Aluminum in 1991. Three years later, it merged the two distributors and took them public.

"We have a long track record with CGW," Ross said. "There's a strong commitment on both sides." Citicorp Venture Capital, he said, is a high-profile firm that retains a strong reputation and lots of resources.

Cameron Ashley's 30 highest-ranking officials will take part in the purchase, but they have yet to determine what stake each person will acquire. Once the Cameron execs determine their percentage of ownership, CGW and Citicorp Venture Capital will each acquire half of the remaining shares, Ross explained.

Even though Cameron would become privately owned, the new agreement could give it more freedom to pursue deals than it had as a public company. Ross said Cameron's low stock price often hurt its efforts to use shares as currency in negotiating potential deals.

Control of day-to-day operations will remain with Cameron Ashley's officials. Ross and Wally Muratori, its president and chief operating officer, will continue to make the bulk of the strategic decisions, he said, but they will now be assisted by the new partners.

The deal, which is subject to shareholder and regulatory approvals, is expected to close during the second quarter of 2000.

                           CAMERON ASHLEY GROWS
                        EVERYWHERE BUT WALL STREET
                 (1999 sales, income, share price change)
Sales        $1.1 bil  26.7%
Income      $17.1 mil  11.6%
Share Price
  1/14/99   $13 1/4
  1/14/00   $11 3/16  -15.6%
Source: Cameron Ashley, Yahoo! Finance