The ABCs of the Bradco acquisition

The acquisition of Bradco Supply by ABC Supply is easily the largest merger in the roofing distributor industry ever, creating a company that will dwarf its competitors with 479 locations in 45 states and the District of Columbia. Given the size of the deal, the acquisition is subject to the Hart-Scott-Rodino Act and other regulatory approvals. Both companies expect to close the purchase, whose price has not been disclosed, by the end of June.

Founded by Barry Segal in 1965, Bradco has gone through many permutations through the years. At one point it was on the verge of being acquired by Cameron Ashley, but the deal fell through over management issues. Several years later, Segal attempted to purchase all 59 units of the struggling Wickes Lumber chain. He ended up with 20. And these were eventually closed, sold or converted over to locations that sold roofing and exterior building products as well as several cabinet and millwork showrooms.

In February 2008, Segal retired, appointing Ted Boylan as CEO and his two sons, Brad and Martin, as president and company VP, respectively. Six months later, in August, the Segal family sold a majority stake (85%) in the company to Advent International, a private-equity firm that specializes in mid-market buy-outs and strategic repositions. The two companies said they planned to grow the business through acquisitions and regional expansions.

And that’s exactly what they did. In the past year, the Avenel, N.J., distributor purchased businesses in Denver; Warminster, Pa.; Schenectady, N.Y.; and the Charlotte/Raleigh, N.C., markets. This past March, in a press release, VP of acquisitions Martin Segal said Bradco was “aggressively seeking opportunities to expand its business.”

Given the flurry of acquisitions that it funded, the May 13 sale announcement seemed an about-face. When asked why the investment firm decided to sell Bradco at this time, a spokesman for Advent declined to comment.

Chris Kampe, managing director with investment firm Tully & Holland, noted that Advent purchased Bradco “right before the market fell off the cliff in July 2008.” When Bradco began bolting on regional distribution centers all over the country, ABC Supply had to notice the threat of increased competition.

“Exiting [Bradco] less than two years following their investment, coupled with their aggressive acquisition strategy, would lead me to believe that ABC Supply’s interest was not solicited by Bradco,” Kampe speculated.

In other words, Bradco was not on the block. So did ABC make Advent an offer it couldn’t refuse? “Advent would not have sold early unless it was worth its while,” Kampe said.

ABC Supply was already the No. 1 roofing distributor, with $2.7 billion in revenues in 2009. But that’s only an estimated 15% of the roofing market, which is heavily dependent on the replacement business. Occupying the No. 2 spot behind ABC is Beacon Roofing Supply, a publicly held company with $1.6 billion in 2009 revenues and 178 branches.

Brent Rakers, a research analyst with Morgan Keegan, said the ABC-Bradco merger has positive ramifications for the roofing industry in general and Beacon Roofing in particular. Industry consolidation often helps stabilize prices, he noted in a research report. “Currently, the residential roofing distributors are in the midst of passing through two separate manufacturer-based price increases (each at 5% to 7%) to their end customers,” Rakers wrote. “[Ultimately], we believe ABCBradco will help maintain/improve the industry’s pricing dynamic.”

Industry observers expect more consolidation as local and regional distributors try to take on the new giant. But ABC Supply will have its hands full integrating Bradco’s 129 branches, which are spread across 30 states. With two of the most active roofing company buyers out of the picture for a while, Beacon may have the field to itself.

The Peabody, Mass., distributor has been no shirker on the purchasing front. Beacon steadily expanded its footprint last year, buying units in Chattanooga, Tenn.; Albuquerque, N.M.; and Oklahoma City. In February of this year it entered the Orlando, Fla., market, also through an acquisition.

Rakers of Morgan Keegan noted that Bradco has 25 to 30 locations in Florida, and ABC has 18. In New York, the two companies have nine and 10 branches, respectively, while Beacon has one.

“It’s always tough to determine how the surviving company will operate, [whether] as a combined company or if they will maintain both brand names,” Rakers told Home Channel News. “But I would assume there is intent to consolidate some locations.”

When the company starts streamlining its operations, this may present opportunities for Beacon and other competitors, Rakers said in his research note.

“We believe it is likely that talented sales/branch management personnel will become available in the marketplace, and that real estate might come on to the market. As the industry’s sole publicly owned company with a strong core national and regional management team, we feel the company represents an attractive option if former ABC-Bradco employees become displaced.”

There has been no official word on who will be staying with Bradco when ABC takes over. (Neither ABC Supply nor Advent International would agree to an interview for this article.) Martin Segal, son of the company’s founder, is the only remaining member of the Segal family listed on the company’s executive team. In December 2009, Bradco named Larry Stoddard, a longtime veteran of Wolseley, as its CEO.

ABC Supply, headquartered in Beloit, Wis., was founded in 1982 by Ken and Diane Hendricks. Ken Hendricks died in an accidental fall in 2007, and his wife continues to serve as chairman of the board.