DALLAS and DENVER -- Builders FirstSource, Inc., a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today announced that it has entered into a definitive purchase agreement to acquire ProBuild Holdings LLC, one of the nation's largest professional building materials suppliers, in an all-cash transaction valued at approximately $1.63 billion. The transaction, which was approved by the Builders FirstSource Board of Directors, is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2015.
ProBuild was created in 2006 by Devonshire Investors, the private equity firm affiliated with FMR LLC, the parent company of Fidelity Investments. With approximately $4.5 billion in revenue in 2014, ProBuild is one of the largest distributors of building materials to professional builders, contractors and project-oriented consumers in the United States. ProBuild operates lumberyards, component facilities, millwork shops, gypsum yards and retail stores across 40 states. Together, Builders FirstSource and ProBuild will have an enhanced portfolio of products with increased breadth and depth within its categories, including lumber, windows, doors, millwork, hardware, roof and floor trusses, engineered wood products, gypsum, roofing, metal and concrete products, cabinets and countertops. In addition, the combined company will better serve its customer base through its broader scale and operating footprint, enabling it to deliver products and services more effectively and efficiently.
Floyd Sherman, Chief Executive Officer of Builders FirstSource, said, "We are very pleased to announce this compelling combination with ProBuild to create a more diversified company with enhanced scale and an improved geographic footprint that will drive significant value for our customers and stockholders. As the U.S. housing market continues its recovery, we believe now is the ideal time to position Builders FirstSource for its next phase of growth and value creation. Together we will establish a broader, more efficient platform of manufacturing and distribution capabilities, supported by high-quality service from the best talent in the industry. In addition, each of our companies has complementary strengths, and we plan to learn from each other by implementing best practices across the combined company. Builders FirstSource and ProBuild have two of the best sales forces in the industry and share a commitment to enhancing the deep, long-standing customer relationships that each company has cultivated. We look forward to working with the ProBuild team to plan for a seamless integration that will enable us to create exciting new opportunities."
Paul S. Levy, Chairman of the Board of Builders FirstSource and Founder of JLL Partners, said, "Since JLL Partners founded Builders FirstSource in 1998 and took the company public in 2005, we have been intently focused on creating a leading platform that professionalizes the building products industry through a best practices approach to conducting business. We are accomplishing our objective by providing a variety of products and services as well as personalized attention to our customers at the local level, and the combination announced today will significantly advance these efforts across a broader operating footprint. We are confident that the substantial additional resources that ProBuild brings to Builders FirstSource will help drive significant value creation over the long-term."
David A. Barr, Managing Director, Co-Head of Industrial and Business Services, Warburg Pincus, commented, "When we first partnered with Builders FirstSource, we saw significant opportunities for the company to pursue acquisitions in the highly fragmented building products distribution industry. Builders FirstSource has established itself as a leader in its field, and this combination with ProBuild will enable the Company to continue to capitalize on favorable market trends in the housing market."
Strategic and Financial Benefits of Transaction
Greater Diversification and Scale: The combination creates a diversified national pro dealer with 2014 combined revenues of approximately $6.1 billion. The transaction represents an important opportunity to grow in four critical customer segments, including Production Builders, Custom Builders, Multi-Family/Commercial and Repair & Remodel. The enhanced diversification of products and services will enable the combined company to capitalize on the continued recovery in the housing market, while also better protecting the Company from cyclicality through broader sales exposure.
Improved Geographic Footprint: Upon completion of the transaction, the combined company will be better positioned to meet the needs of all customers in the highly fragmented professional building materials segment. The combined company will have a presence in 40 states and 24 of the top 25 metropolitan statistical areas (based on 2014 Single Family Home Building Permits per U.S. Census data).
Expanded Sales of Higher Margin Products: Builders FirstSource brings to ProBuild significant sales expertise in value-added products, which combined with ProBuild's attractive customer mix, should result in enhanced sales growth of higher margin products.
Substantial Cost-Savings: The combination of Builders FirstSource and ProBuild is expected to generate a range of approximately $100 million to $120 million in annual run-rate cost-savings synergies in the first two years following close. Actions to begin capturing a majority of these savings are expected to be implemented within the first 12 months following close through network optimization, procurement, and general and administrative costs. One-time costs of $90 million to $100 million are expected to be incurred to achieve these synergies during the first two years.
Favorable Timing, Growth Potential and Financial Impact: The U.S. single-family housing market is at near record levels of affordability and demonstrating a solid recovery. At today's level of approximately 1.0 million total housing starts per year, total housing starts still need to increase approximately 50% to reach the historic median and double to reach prior peak levels. The combined company expects to capitalize on its expanded financial profile through the recovery. Both companies have steadily improved adjusted EBITDA and margins through recognizing efficiencies over the past four years. Additionally, the transaction is expected to enhance adjusted EBITDA and margins through the realization of substantial cost synergies and a more diversified portfolio. The transaction is also expected to be immediately accretive to Builders FirstSource's earnings.
Upon closing of the transaction, Floyd Sherman will serve as Chief Executive Officer of the combined company, and Chad Crow will serve as Chief Financial Officer. Robert Marchbank, Chief Executive Officer of ProBuild, will continue as part of the ProBuild leadership team to support integration planning and ensure a smooth transition. Over the coming months, additional announcements will be made regarding the combined company's senior leadership team, which will be composed of leaders from both companies.
The all-cash transaction is valued at approximately $1.63 billion. Builders FirstSource has obtained fully committed financing comprising a rollover of Builders FirstSource's $350 million existing Senior Secured Notes, new debt issuance in the form of $295 million drawn under a new $800 million ABL facility, and a new $550 million Term Loan B. Builders FirstSource also expects to issue $750 million in new Senior Unsecured Notes and $100 million of new equity through a public offering of shares of Builders FirstSource common stock prior to the consummation of the transaction.