Taking stock of BlueLinx

BlueLinx, the Atlanta-based building products distributor, is acquiring wholesale distributor Cedar Creek in a $413 million deal. The combined companies will offer more than 50,000 branded and private label SKUs, as well as a distribution footprint of 70 national locations servicing 40 states.

To say Wall Street liked the deal is an understatement. The stock price, which had been dramatically outperforming the industry for the past year, skyrocketed nearly 80% on the day of the announcement — as well as another 20% on the day after.

Matt Zielenski, an industry analyst with the Cleveland-based Freedonia Group research firm, explained why he likes the deal and its timing.

“This transaction greatly expands BlueLinx’s physical presence in the building materials distribution market and makes BlueLinx a more formidable competitor nationwide,” Zielenski said, noting that construction activity in the United States has demonstrated steady growth.

The acquisition positions BlueLinx in the right spot for capitalizing on an increased demand for building materials, according to Zielenski.

“Housing starts are expected to rise during the remainder of 2018, especially now that the weather will be more favorable in the United States,” Zielenski said. “Additionally, as rebuilding activity continues in Florida and Texas in the aftermath of hurricanes Harvey and Irma and more consumers show an interest in home improvement projects, contractors will be purchasing more plywood, framing lumber, insulation, siding and other building materials. The combined operations of BlueLinx and Cedar Creek can supply builders and contractors with most, if not all, of these products.”

Seeing double: Acquisition doubles footprint

It was announced March 12 that BlueLinx would acquire Cedar Creek, the Oklahoma City-based wholesale lumber and building materials distributor, from the portfolio company of Charlesbank Capital Partners. In the $413 million deal, BlueLinx is paying about $345 million in cash and approximately $68 million in the agreed value of capital leases for Cedar Creek. BlueLinx said the transaction has been unanimously approved by its board of directors and is expected to close by May.

In addition to its combined footprint of 70 locations, the combined companies will also service nearly 15,000 national, regional and local dealers; specialty distributors; national home center chains; industrial customers; and manufactured housing customers. The combined revenue of both companies was $3.2 billion in 2017 — BlueLinx had sales of $1.82 billion through 39 locations, while Cedar Creek generated revenue of $1.42 billion through 31 locations.

“Cedar Creek’s commitment to organic growth and its customers as well as its track record of successful acquisitions make it an ideal partner for BlueLinx,” said Mitch Lewis, president and CEO of BlueLinx. “The combination will significantly enhance our product portfolio by providing greater breadth and depth of building products and services for our customers and suppliers across our markets.”

“This transaction will create a leading U.S. wholesale distributor of building and industrial products and significantly enhance the value that we can deliver to our customers, as well as our supplier partners and end-market consumers,” Lewis said.

Lewis will serve as CEO of the new company while Cedar Creek CEO Alex Averitt will become COO of the new BlueLinx. Averitt, who assumed the role of Cedar Creek CEO in 2017, has 20 years of experience in the sector.

BlueLinx demonstrated that it was in a strong position prior to the acquisition. On March 1, the company reported net sales of $433.6 million for the fourth quarter of 2017, up 2.8% from net sales of $421.7 million in the fourth quarter of 2016. BlueLinx reported a net income of $53.5 million for the quarter, up from $10.4 million in the fourth quarter a year ago. For the full year, BlueLinx posted a net income of $63 million (up 34%).

BlueLinx also recently paid off the remaining mortgage principal of approximately $98 million. The payment was funded through long-term sale leaseback transactions on four properties owned by the company, which provided $110 million in aggregate sale proceeds, the company said.

“These results, coupled with the four sale leaseback transactions we completed on Jan. 10, position us well to capitalize on our anticipated continued strength in the markets we serve,” Lewis said.

Despite the drop-off in sales for the year as a whole — sales fell 3.5% to $1.82 billion in 2017 from net sales of $1.88 billion in 2016 — Susan O’Farrell, BlueLinx senior VP and CFO, described 2017 as “exceptional for BlueLinx.”

“Our continued focus on deleveraging the business led to one of the best years in company history as we improved our financial results and significantly reduced our debt,” O’Farrell said.

In a presentation to analysts, BlueLinx pointed to a half-dozen reasons to be bullish on the Cedar Creek acquisition. These included:

• Creation of a company with greater breadth and depth of building products and services;


• Expansion of geographic reach and local market presence in the Northeast, Midwest and South;


• Strong customer diversification (no single customer represents more than 5% of combined sales);


• Timing is right to grow with the housing recovery;


• Cost savings anticipated of at least $50 million run-rate annually to be achieved within 18 months; and


• Improved financial flexibility to support growth.