All the right moves

The 2013 Pro Dealer Top 200 Industry Scoreboard rewards strategy, vision and acquisition.

Winning at chess requires careful management of countless moves and combinations of moves. It requires the ability to identify shifting competitive positions, to execute retreats where necessary and attacks when opportunity knocks.

Most of all, it requires a vision.

Sound familiar? Lumberyard and building material dealers know very well these challenges. And then some. Fluctuating prices and market conditions magnified by the forces of a recovering housing market have added a third dimension to the game's complexity.

Through it all, based on the results of the Top 200 list of the 2013 Pro Dealer Industry Scoreboard, pro dealers — defined as companies whose primary business is selling lumber and building materials to home builders — appear to be making all the right moves.

Consider the following key results:

• Combined sales of the top 200 were $38.231 billion, up 11.1% from $34.378 billion.

• The percentage of companies to generate positive sales gains over the previous year was at an all-time high — 95%.

• Of the Top 200 companies, 84 showed double-digit percent increases in 2012 sales, compared with the year-ago figure.

Certainly, pro dealers benefited significantly from the law of supply and demand. In the most general terms, in 2012 they saw more builders buying more product at prices inflated by declining supply. And even though housing starts in 2012 were the fourth lowest on record, they were up 28.2% from 2011 — and up 24.3% on a single-family basis.

Last year the rising demand seemed to come slowly and sporadically — and then quickly.

"The first signs of the housing market recovery seemed limited to only certain areas of the country," said Chuck Bankston, chairman

of the National Lumber and Building Material Dealers Association (NLBMDA) and president of Bankston Lumber in Barnesville, Ga. "By the end of 2012, I noticed the majority of members I talked with were reporting widespread improvement, regardless of their location."

Pent-up demand was one of the main driving forces, he said, along with a roll call of usual macro-economic suspects, a high-flying stock market and swelling consumer confidence.

Acquisitions drove big gains for several Top 200 companies, and the M&A movement is one of the leading LBM stories of 2012 with no signs of slowing down in 2013.

No company on the Top 200 grew faster than Denver-based Kodiak Building Partners, No. 80 on the list. And no larger company grew faster than McKinney, Texas-based SRS Distribution, No. 12. Acquisitions factored prominently in both gaudy growth-percentages. At Kodiak, a July 2012 acquisition of Houston-based Gulf & Basco was followed by the October acquisition of Great West Drywall Supply of Greenwood Village, Colo. Those both followed the 2011 acquisition of Barton Supply.

Like several other acquisition-minded pro dealers, Kodiak looks for "good management teams and good businesses," said Paul Hylbert, Kodiak chairman and CEO. "We want to find good people and partner with them and let them run the business. We think the local people in the local market are the ones who can make the best decisions on assortment and customer base."

Selectivity is a key to Kodiak's acquisition strategy. "Last year, we probably looked at 100 deals, and did just two," said Hylbert, who stressed the importance of mutually beneficial terms. On the operations side, one increasingly important key is understanding the value of your pieces. "There's been some big movement both up and down in wood product commodities," he said, adding that passing on price increases to customers is a difficult task. "It's incumbent upon the dealer to hedge their bet in whatever way they can."

Steadily rising up the ranks of the Top 200 is US LBM Holdings, No. 14., also a company describing itself as constantly vigilant for acquisitions. But one thing CEO L.T. Gibson made clear in an interview with HCN is that when the acquisition is over, that's when the work begins to support, grow and share best practices to improve the local markets.

"The fun part is where all help each other grow," said Gibson. To achieve growth, quarterly meetings bring the company's collection of local market LBM leaders together to share best practices.

One concept to emerge from this structure deals with specialty products, and willingness of some lumberyard companies to give up without a fight to specialty distributors. US LBM Holdings companies are beginning to ask "Why?" Gibson said dealers with expertise in windows, decking, cabinets and roofing are sharing plans and exchanging information that works in various markets.

The local divisions "have to have a strategy to grow," said Gibson. "We don't give it to them, but they have to have one."

There were also fast-growing companies that avoided M&A completely. At Boise, Idaho-based BMC, a company that just missed making the Top 10 fastest-growing list, CEO Peter Alexander said the 37.6% growth for the company was all organic.

"Construction activity has rebounded strongly, and we enjoy 12-month building cycles in most markets," he told HCN.

In contrast, SRS Distribution describes itself as "tenacious in our efforts to acquire" independent roofing specialists. COO Dan Tinker is clear about the company's growth plans — triple the size of the company in the next five years to more than $2 billion in revenue.

"In our business, the big don't eat the small, the fast eat the slow," said Tinker.

The company's network of roofing specialists in 31 states includes Pace Supply in Philadelphia, Burbank Roofing in Southern California and Abco Supply in Michigan. SRS has shown steady growth during the last five years during a decidedly declining market. Tinker attributes part of that success to the recession-resilient quality of roofing. But also, the company competes as the local market player, as opposed to the national brand.

"We run our company like a family of independents, Tinker said. "To our customers, we want to be the family company down the street."

And then there's the weather — specifically hail storms, which necessitated a high level of repair in 2012. Everybody thinks about hurricanes and tornadoes, but it's actually the hail storms that drive a big piece of roofing demand. Tinker said.

Asked if tripling the sales of the company in five years is an ambitious strategy, Tinkers said: "That's what we get paid to do. Grow.