SlideShare a Scribd company logo
1 of 58
Download to read offline
Beacon Roofing Supply Inc.
Group One | Acquisition Team
Molly Cooney, Chelsea Krogwold, Benjamin Lindberg, Justin Pittman, Tyler Walimaa
Presentation Agenda
• Our Strategic Direction
• Acquisition Options
• Selection Criteria | Acquisition Candidates
• Rationale for Acquiring BlueLinx
• SWOT | Target Market | Properties | Suppliers | Employees | Financial Analysis
• Valuation and Purchase Price
• Valuation | Purchase Price | Financing
• Integration of BlueLinx
• Integration Timeline | Properties | PPE | IT | Employee Release | Orientation and Training | Culture |
Benefits | Rebranding Strategy | Contingency Plans | Communication Plan
• Conclusion
• Questions
2
Strategic Direction
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
3
Customer Service
Geographic
Expansion
Product Mix
Diversification
Acquisition Strategy
Selection Criteria
 Customer Focus
 Geographic
 Product mix diversification
 Culture
 Synergy opportunity
 Vertical acquisition
opportunity
 Financial risk
 Seasonality
 Turnaround
Criteria
Custom
er
Focus
Geographic
Diversification
Vertical
Culture
Risk
Seasonality
Synergy
Turnaround
Totals
Weight 10 9 8 5 9 7 6 8 5
Real Goods Solar 70 45 40 50 45 42 30 40 35 397
Quanex 80 54 48 60 54 49 48 48 40 481
BlueLinx 90 90 80 50 72 63 42 64 45 596
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
4
Pros
• Customer Focus
Cons
• Lack geographic
locations
• Minimal product
diversification
• Low synergy
opportunity
Real
Goods
Solar
Pros
• Geographic
locations
• Culture
• Synergy
opportunity
Cons
• Turnaround
• Minimal product
diversification
• Seasonality
Quanex Pros
• Customer focus
• Geographic
locations
• Culture
• Synergy
• Product
diversification
Cons
• Unstable financial
situation
BlueLinx
Acquisition Candidates
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
5
Purchase Price: $250 million
Marketing – SWOT Analysis
Beacon SWOT Analysis BlueLinx SWOT Analysis
Strengths Weaknesses
• Financial flexibility
• Customer service focus
• Customer relationships
• Highly leveraged capital structure
Weaknesses Strengths
• Cyclical revenue stream
• Limited product mix
• No Mexico, Wisconsin, Manhattan locations
• Interior products reduce cyclical sales
• Diverse product mix
• Mexico, Wisconsin, Manhattan locations
• Customer service focus
Opportunities Opportunities
• Diversification of product mix
• Geographic expansion
• Geographic expansion
Threats Threats
• Competition
• Economic downturn
• Insolvency
• Competition
• Economic downturn
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
6
Marketing – Target Market
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Beacon
 Contractors
 Commercial
 Residential
 Exterior Builders
 Re-roofing contractors
BlueLinx
 Contractors
 Commercial
 Residential
 Exterior Builders
 Interior Builders
 Retail home project consumers
 Industrial and manufactured
housing
7
Management – Properties
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
• 55 locations
• 52
warehouses
• 3 sales
centers
• HQ -
Atlanta, GA
• 265 locations
• HQ -
Herndon,
VA
• 308 locations
• HQ –
Herndon,
VA
BlueLinx Locations Beacon Locations Combined Locations
Consolidation
• BlueLinx HQ
• 9 BlueLinx
warehouses
• 2 Beacon
warehouses
8
Beacon Headquarters
Beacon Locations
BlueLinx Headquarters
BlueLinx Locations
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Management –
Properties
Key New Markets
Recommended Closures
Management – Properties
Warehouse Consolidation
 One time gain from sale of properties:
$74,735,594
 Cost savings of $4,162,712
Headquarters Consolidation
 Sublease for remaining 10 year lease
 $29,700,000 rent collected
 Total tax expense of $1,282,160
 Cost savings of $1,155,000
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
10
Management – Suppliers
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
11
 Roofing
 Windows
 Insulation
 Siding
Combined
216
suppliers
Roofing
Insulation
Structural
framing
Interior
Supplies
Doors and
trim
Outdoor
living
Siding
Windows
 Roofing
 Insulation
 Outdoor living
 Structural framing
 Interior supplies
 Doors and trim
Beacon Suppliers: 16
BlueLinx Suppliers: 750
Management – Suppliers
 Reasons for supplier consolidation
 Suppliers do not have capacity to fill combined purchase orders
 Suppliers providing duplicate products
 Economies of scale from larger purchase orders
 Enhanced pricing flexibility
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
12
Human Resources – Employees
• 1,700
employees
• -578 union
BlueLinx
• 3,179
employees
• -35 union
Beacon
• 4,503
employees
• -613 union
Combined
13
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Reductions:
376 employees
Human Resources – Employees
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 $28 million savings from wages
and benefits
 $7.7 million expenditure on
employee release
 Net effect: $20.3 million
savings
14
Savings 28,000,629$
Expenditures
Outplacement Services 1,282,000
Severances - Executive 4,810,000
Severances - Nonexecutives 1,577,596
Net Effect 20,331,033$
Employee Consolidation effect
Human Resources – Employees
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Total cost of new employees
added to Beacon’s payroll:
$79.4 million
15
Salaries/Wages
Sales 19,367,040$
Branch Management 15,799,000
Warhouse/CDL 20,457,360
General Admin. 5,118,960
VP of BlueLinx 300,000
Benefits 18,312,708
Net Cost 79,355,068$
Retained BlueLinx Employees
Financial Analysis – Income Statement
4th and 5th ranked market
share in 2014
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
16
Financial Analysis – Income Statement
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Industry leader in
2017
1 Beacon
2 ABC
3 ProBuild
4 Allied
5 84 Lumber
6 Builders
7 HD Supply
8 L&W Supply
9 Roofing Supply
Building Supply
Market Share
Rankings
$5.3 Billion
17
 Initial decrease in gross profit
Financial Analysis – Income Statement
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon 594,279$ 651,958$ 715,235$ 784,653$ 860,809$
23.28% 23.28% 23.28% 23.28% 23.28%
BlueLinx 235,370$ 241,692$ 248,184$ 254,850$ 261,696$
11.58% 11.58% 11.58% 11.58% 11.58%
Combined 577,400$ 948,161$ 1,064,824$ 1,293,404$ 1,523,490$
17.90% 19.40% 20.09% 22.40% 23.90%
Gross Profit Projections
*dollar amounts in thousands
 Increase in gross profit from
 Supplier consolidation
 Economies of scale
 By 2019, gross profit will be
better than pre-acquisition
18
 Initial operating income drops from
5.48% to 1.73%
 Operating income increases from:
 Consolidation of fixed assets
 Consolidation of administrative expenses
 Fixed expenses spread over more sales
 Synergy results in operating income
(percentage of sales) over 9% by 2019
Financial Analysis – Income Statement
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
19
 Net income lower in first year from:
 Interest expense
 Acquisition expenditures
 Increases as:
 Economies of scale take affect
 Consolidation of assets
 Consolidation of people
 Decreasing interest expense
Financial Analysis – Income Statement
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
20
 Low cash from aggressive debt reduction
 Increased risk from diminished liquidity
 Limited expansion options
 Until 2019 when 93% of debt is paid off
 Low interest expense
 Increased financial stability
 Broad expansion options from financing
flexibility
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
21
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
22
 Low leverage (40% debt)
 Able to finance growth with debt
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
23
 High leverage (107% debt)
 Financially unstable
 Limited growth options
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
24
 Medium leverage (57% debt)
 More risky than Beacon
 Less risky than BlueLinx
 Temporarily limited financial
flexibility
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
25
 Initially, high LT debt balances (June 1st,
2015):
 $290 million Beacon LT debt
 $438 million BlueLinx LT debt
 $140 million new debt
Financial Analysis – Balance Sheet
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Aggressive debt reduction
 New opportunities for major growth by
2018-2019
 $50 million LT debt remaining
26
 Higher operating cash flows resulting
from
 Consolidation of administrative expenses
 Economies of scale
 The higher cash flows following
acquisition are critical for
 Debt reduction
 Financial flexibility from enhanced
liquidity
Financial Analysis – Cash Flows
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon 84,537$ 91,449$ 98,997$ 107,242$ 116,353$
BlueLinx (1,896) 157 742 99 (837)
Combined 46,758 197,282 217,604 310,041 306,294
Operating Cash Flows
*numbers in thousands
27
 Beacon investing cash used on fixed
assets, organic growth and minor
acquisitions
Financial Analysis – Cash Flows
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon (89,191)$ (93,996)$ (99,431)$ (105,573)$ (112,513)$
BlueLinx 12,881 10,735 7,618 2,975 (2,659)
Combined (200,204) (53,488) (60,504) (68,429) (77,382)
Investing Cash Flows
*numbers in thousands
 BlueLinx investing cash provided by sale
of property, plant and equipment to
maintain solvency
 Beacon with acquisition,
 Acquisition of BlueLinx in 2015
 Reduced investing expenditure 2016-2019
to concentrate cash on debt reduction
28
 Beacon currently makes little use of
financing cash flows
 Has financing options for growth
 Combined,
 2015, increase in debt due to acquisition
 2016-2019, aggressive debt reduction
Financial Analysis – Cash Flows
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon 1,341$ 3,590$ (6,444)$ (9,218)$ (6,123)$
BlueLinx (10,975) 10,938 (8,360) (2,624) 4,070
Combined 104,210 (138,898) (135,779) (191,678) (161,473)
Financing Cash Flows
*numbers in thousands
29
 Reduced liquidity 2015-2018
 Still above 1.00
 Sales growth drives increase in short-
term assets to counterbalance short-
term liabilities
 Enhanced liquidity by 2019
Financial Analysis – Key Ratios
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
30
 Increased debt burden decrease
interest coverage ratio to 2.64
 Will stay above minimum (set by
management) of 1.5
 As sales increase and debt decreases,
interest coverage increases
 By 2019, interest coverage ratio will
be 280 times.
Financial Analysis – Key Ratios
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
31
 2015: ROE, ROA, ROIC lower
with acquisition
 2016-2019: ROE, ROA, ROIC
higher with acquisition
Financial Analysis – Key Ratios
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon 8.43% 8.26% 8.11% 7.98% 7.87%
BlueLinx - - - - -
Combined 5.63% 13.84% 13.11% 15.86% 16.99%
Return on Equity
Beacon 5.03% 5.06% 5.02% 4.94% 4.88%
BlueLinx -0.19% 0.01% 0.04% -0.20% -0.60%
Combined 2.43% 6.80% 7.45% 10.52% 12.90%
Return on Assets
Beacon 10.46% 10.47% 10.23% 9.79% 9.46%
BlueLinx -0.82% 0.03% 0.26% -1.66% -6.32%
Combined 5.19% 16.38% 18.08% 26.55% 31.90%
Return on Capital
32
 Net positive synergies of $137.8 million
in first five years
 $28 million FTE reduction
 $81.5 million facilities consolidation
 $0.7 million economies of scale
 $41.7 million additional sales
 $19 million lost customers
 $4.9 million restructuring cost
Financial Analysis – Synergies
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
($ in millions) 2015 2016 2017 2018 2019
FTE Reductions 28.0$
Facilities Consolidation 12.2 48.9 20.4 - -
Economies of Scale 0.1 0.1 0.1 0.2 0.2
Additional Sales 5.3 8.0 8.6 9.4 10.4
45.5$ 57.0$ 29.2$ 9.6$ 10.6$
Loss of Customers (19.0)
Restructuring Cost 4.9 - - - -
31.4$ 57.0$ 29.2$ 9.6$ 10.6$
Net % of target SG&A 13.96% 24.88% 12.52% 4.04% 4.38%
Net Synergies
Synergy Summary
Positive Synergies
Negative Synergies
33
 $250 million purchase price
 Payback period: 3.08 years
Financial Analysis – Return on Investment
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
2015 2016 2017 2018 2019
Beacon Net Income
Without Acquisition 78,495$ 86,615$ 95,530$ 105,318$ 116,064$
Combined Net
Income with Synergy 56,055 164,508 182,983 269,099 354,953
Gain from Acquisition (22,440)$ 77,893$ 87,453$ 163,781$ 238,889$
Return on Investment -14.38% 49.93% 56.06% 104.99% 153.13%
(dollar amounts in thousands)
Return on Investment and Payback Period
34
Valuation of BlueLinx
TEV/EBITDA
• $164,373,000
• 7.7x
EBITDA
Multiple
• $124,700,000
• 5.5x
EV/Sales
• $494,800,000
• 0.44x
DCF
• $92,700,000
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
35
Market Capitalization: $102.8 million
Purchase Price
 Initial offer:
 $150,000,000 to $250,000,000
 37% - 129% premium
 Drop-dead price:
 $350,000,000
 221% premium
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
36
Financing
 $250,000,000 purchase price
 Senior term loan: $140,000,000
 Line of credit: $50,000,000
 Cash $60,000,000
 Interest rate on new debt: 4.00%
LT Debt
56%
LOC
20%
Cash
24%
BlueLinx Acquisition Financing
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
37
Integration Timeline
Day One Agenda
 Dissolve Board of Directors
 Employee Release Letter
 Press Release
 Property consolidation begins
 Letter to retained suppliers
 Letter to customers
 Begin benefit integration
 Videoconference and teleconference with
employees
 Begin installing video conferencing
software into newly acquired locations
38
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
*Refer to pg. 24 in BlueLinx Acquisition Information Packet for full Gantt Chart
Management – Property
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 All properties being closed will be put up for
sale on June 1st
 All properties being closed will cease
operations on June 30th
 15% sold by Sept. 30th, 2015
 60% sold during fiscal 2016
 25% sold during fiscal 2017
15%
60%
25%
Property Sale Time Frame
By Year End 2015
By Year End 2016
By Year End 2017
39
Management – PPE
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Equipment and Fleet
 Beacon
 863 straight trucks, 312 tractors, and 641
trailers
 BlueLinx
 480 tractors and 700 trailers
 Combined, BlueLinx will increase our
tractors by 65% and our trailers by 91%
 Additional equipment obtained on 7-9 year
lease from current supplier
40
Inventory
 Inventory will be moved to the closest
locations
 June 8th-June 30th
 Engage BlueLinx employees in the
consolidation process
Management – IT System
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 BlueLinx also uses the AS400 information system
 System integration cost of $250,000
 IT integration, June 5th – June 30th
 System merge
 Beta testing
 Final launch
41
Human Resources – Orientation and Training
Cost of orientation and training: $100,000
Orientation
 Employees complete orientation within one
month
 Via Adobe Connect video conferencing
software (in BlueLinx locations during first
week)
 Brochures and Information Booklets
 Leadership Development Program, Union
information, Culture, Products
Training
 Leadership Development Program
 Travel to acquired locations
 Videoconferencing to Branch Managers
 Training branch employees by branch
managers
 Sales employees
 Face to face training with Robert McKagen
and Brenden Daly
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
42
Human Resources – Culture
Culture
Integration
Integrity
Teamwork
Continuous
Improvement
Passion
Teamwork
Integrity
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
43
Human Resources – Benefits
BlueLinx
• Medical
• Dental
• Vision
• Vacation
• Paid holidays
• Disability insurance
• 401(k)
• Life insurance
• FSAs
Beacon
• Medical
• Dental
• Vision
• Vacation
• Paid holidays
• Disability insurance
• 401(k)
• Life insurance
• Paid sick days
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
44
Marketing – Rebranding Strategy
 Ultimately, BlueLinx rebranded as “BlueLinx a Division of Beacon”
 BlueLinx a Division of Beacon:
 Interior products
 Structural
 Doors and trim
 Outdoor living
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
45
Marketing – Advertising Budget
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
46
Marketing – Rebranding Strategy
Social
Networks,
Website
Newsletter Catalog
Online
advertising,
Trade shows,
Direct mail
Rebranding Strategy
May 1st – June 1st Monthly, start 6/15 July 15th
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Ongoing
47
Accounting and Finance – Contingency Plans
 Complete benchmark guidelines p. 58 of
“BlueLinx Acquisition Information” packet
 3 consecutive years of missing benchmarks
without economic downturn
 Or interest coverage ratio less than 1.5
 Employee reductions
 Sale of assets including $330 million
acquisition assets
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
48
Communication Plan
Shareholders
Proxy Statement
May 9th
Employees
Videoconference
Teleconference
Release Letter
June 1st
General
Public
Press Release
June 1st
Suppliers
Supplier Calls
Retain Letter
Release Letter
June 1st
-
June 8th
Customers
Customer Letter
Customer Call
June 1st
-
June 9th
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
49
Communication Plan – Employees
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Beacon branches to be dissolved:
 Videoconference June 1st, 11:00 a.m. EST
 Christopher Harrison, Human Resources
 All Beacon employees:
 Videoconference June 1st, 12:00 p.m. EST
 Paul Isabella, CEO
Employees
Videoconference
Teleconference
Release Letter
June 1st
50
Communication Plan – Employees
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 BlueLinx locations to be dissolved:
 Teleconference June 1st, 12:30 p.m. EST
 Christopher Harrison, Human Resources
 All BlueLinx Employees:
 Teleconference June 1st, 1:00 p.m. EST
 Paul Isabella, CEO
Employees
Videoconference
Teleconference
Release Letter
June 1st
51
Communication Plan – General Public
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Press release
 Released on Beacon website
 Available on June 1st, 2:00 p.m. EST
General
Public
Press Release
June 1st
52
Communication Plan – Suppliers
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Suppliers retain letter
 All Beacon suppliers and 200 BlueLinx suppliers to be retained
 Sent on June 1st
 Supplier release contact
 Phone contact by purchasing department on June 2nd – June 5th
 500 BlueLinx suppliers
 Supplier formal release letter
 Sent on June 8th
Suppliers
Supplier Calls
Retain Letter
Release Letter
June 1st
-
June 8th
53
Communication Plan – Customers
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
 Customer letter
 Sent to all customers on June 1st
 Major customer calls
 Calls made by sales agents on June 2nd and 9th
Customers
Customer Letter
Customer Call
June 1st
-
June 9th
54
The acquisition of BlueLinx will
provide Beacon with opportunity
for net positive synergies of
$137.8 million
Conclusion
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
55
($ in millions) 2015 2016 2017 2018 2019
FTE Reductions 28.0$
Facilities Consolidation 12.2 48.9 20.4 - -
Economies of Scale 0.1 0.1 0.1 0.2 0.2
Additional Sales 5.3 8.0 8.6 9.4 10.4
45.5$ 57.0$ 29.2$ 9.6$ 10.6$
Loss of Customers (19.0)
Restructuring Cost 4.9 - - - -
31.4$ 57.0$ 29.2$ 9.6$ 10.6$
Net % of target SG&A 13.96% 24.88% 12.52% 4.04% 4.38%
Net Synergies
Synergy Summary
Positive Synergies
Negative Synergies
By acquiring BlueLinx, over the next 5
years, Beacon will
 Increase sales by 65%
 Increase net income by 114.11%
 Increase EBITDA by 92.13%
Which will,
 Increase our profitability
 Stabilize our financial position
 Assume the position of the largest
building supply distributor in the U.S.
Conclusion
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
56
Sales Net Income EBITDA
No Acquisition 15,494$ 482$ 1,016$
Acquisition 25,562 1,032 1,952
Difference 10,068$ 550$ 936$
% Gain 64.98% 114.11% 92.13%
5 Year Net Impact
Conclusion
Strategic Fit
• Customer Focus
• Product mix
diversification
• Geographical
expansion
Competitive
Differentiation
• Enhanced
competitive
position
• Sustainable
competitive
advantage
• Increased
market Share
Enhanced
Financial
Performance
• Increased
profitability
• Enhanced
financial
flexibility
Increased Shareholder Value
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
Strategy
Results
BlueLinx
57
Questions?
• Management – Chelsea Krogwold
• Human Resources – Molly Cooney
• Marketing – Justin Pittman, Tyler Walimaa
• Finance and Accounting – Ben Lindberg
Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions
58

More Related Content

Viewers also liked

Philip Litt Resume
Philip Litt ResumePhilip Litt Resume
Philip Litt ResumePhilip litt
 
Genentech Final Paper
Genentech Final PaperGenentech Final Paper
Genentech Final PaperPavel Morales
 
Q2 fy16 earnings slides final
Q2 fy16 earnings slides finalQ2 fy16 earnings slides final
Q2 fy16 earnings slides finalirusfoods
 
Smokeless tobacco
Smokeless tobaccoSmokeless tobacco
Smokeless tobaccoAnkit Verma
 
NHT GLOBAL PRESENTACION PARTE I
NHT GLOBAL PRESENTACION PARTE INHT GLOBAL PRESENTACION PARTE I
NHT GLOBAL PRESENTACION PARTE INHT GLOBAL LATINO
 
Moving From AngularJS to Angular 2
Moving From AngularJS to  Angular 2 Moving From AngularJS to  Angular 2
Moving From AngularJS to Angular 2 Exilesoft
 

Viewers also liked (13)

ACCESS Presentation
ACCESS PresentationACCESS Presentation
ACCESS Presentation
 
Rigaud_et_al_WASPAA
Rigaud_et_al_WASPAARigaud_et_al_WASPAA
Rigaud_et_al_WASPAA
 
2014 Annual Report
2014 Annual Report2014 Annual Report
2014 Annual Report
 
Philip Litt Resume
Philip Litt ResumePhilip Litt Resume
Philip Litt Resume
 
Genentech Final Paper
Genentech Final PaperGenentech Final Paper
Genentech Final Paper
 
Botanica Brochure
Botanica BrochureBotanica Brochure
Botanica Brochure
 
Q2 fy16 earnings slides final
Q2 fy16 earnings slides finalQ2 fy16 earnings slides final
Q2 fy16 earnings slides final
 
Smokeless tobacco
Smokeless tobaccoSmokeless tobacco
Smokeless tobacco
 
Resume_Mayalagu updated
Resume_Mayalagu updatedResume_Mayalagu updated
Resume_Mayalagu updated
 
resume for axis bank
resume for axis bankresume for axis bank
resume for axis bank
 
NHT GLOBAL PRESENTACION PARTE I
NHT GLOBAL PRESENTACION PARTE INHT GLOBAL PRESENTACION PARTE I
NHT GLOBAL PRESENTACION PARTE I
 
Moving From AngularJS to Angular 2
Moving From AngularJS to  Angular 2 Moving From AngularJS to  Angular 2
Moving From AngularJS to Angular 2
 
Niflan Mohamed CV (2)
Niflan Mohamed CV (2)Niflan Mohamed CV (2)
Niflan Mohamed CV (2)
 

Similar to Beacon Roofing Supply Acquires BlueLinx

The 5 Best Supply Management Practices In Use Today
The 5 Best Supply Management Practices In Use TodayThe 5 Best Supply Management Practices In Use Today
The 5 Best Supply Management Practices In Use Todayfmbabs49000
 
Five Best Supply Management Practices in use Today
Five Best Supply Management Practices in use TodayFive Best Supply Management Practices in use Today
Five Best Supply Management Practices in use Todayfmbabs
 
201306 IASA Conference-Session 602: Operational Efficiency
201306 IASA Conference-Session 602: Operational Efficiency201306 IASA Conference-Session 602: Operational Efficiency
201306 IASA Conference-Session 602: Operational EfficiencySteven Callahan
 
Session 3 and 4 Concept in materials.pdf
Session 3 and 4 Concept in materials.pdfSession 3 and 4 Concept in materials.pdf
Session 3 and 4 Concept in materials.pdfjaiminkhatri4
 
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...Innovation Enterprise
 
Procurement Savings by the Numbers
Procurement Savings by the NumbersProcurement Savings by the Numbers
Procurement Savings by the NumbersZycus
 
Strategic sourcing for optimal gscm
Strategic sourcing for optimal gscmStrategic sourcing for optimal gscm
Strategic sourcing for optimal gscmNMTBus
 
Full Presentation
Full PresentationFull Presentation
Full Presentationnibhayj
 
Introduction to supply chain management
Introduction to supply chain managementIntroduction to supply chain management
Introduction to supply chain managementKwanda Matiwane
 
Game Changing Quality Strategies that Drive Organizational Excellence
Game Changing Quality Strategies that Drive Organizational ExcellenceGame Changing Quality Strategies that Drive Organizational Excellence
Game Changing Quality Strategies that Drive Organizational Excellencekushshah
 
The Power of Discovery for Increasing Win Rates
The Power of Discovery for Increasing Win RatesThe Power of Discovery for Increasing Win Rates
The Power of Discovery for Increasing Win RatesMike Kunkle
 
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...HML's Interest-Only Mortgages Presentation to the Building Societies Associat...
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...HML Ltd
 
Ma presentation nwef final
Ma presentation nwef finalMa presentation nwef final
Ma presentation nwef finalWayne Wilkinson
 
Mergers and Acquisitions: Preparing for Change
Mergers and Acquisitions: Preparing for Change Mergers and Acquisitions: Preparing for Change
Mergers and Acquisitions: Preparing for Change Bailey LeRoux
 
Vision Mission under strategic management PPT.ppt
Vision Mission under strategic management PPT.pptVision Mission under strategic management PPT.ppt
Vision Mission under strategic management PPT.pptswami60
 

Similar to Beacon Roofing Supply Acquires BlueLinx (20)

The 5 Best Supply Management Practices In Use Today
The 5 Best Supply Management Practices In Use TodayThe 5 Best Supply Management Practices In Use Today
The 5 Best Supply Management Practices In Use Today
 
Five Best Supply Management Practices in use Today
Five Best Supply Management Practices in use TodayFive Best Supply Management Practices in use Today
Five Best Supply Management Practices in use Today
 
201306 IASA Conference-Session 602: Operational Efficiency
201306 IASA Conference-Session 602: Operational Efficiency201306 IASA Conference-Session 602: Operational Efficiency
201306 IASA Conference-Session 602: Operational Efficiency
 
Session 3 and 4 Concept in materials.pdf
Session 3 and 4 Concept in materials.pdfSession 3 and 4 Concept in materials.pdf
Session 3 and 4 Concept in materials.pdf
 
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...
Building a Fast and Flexible Consumer-Driven Supply Chain, Stanley Black & De...
 
Procurement Savings by the Numbers
Procurement Savings by the NumbersProcurement Savings by the Numbers
Procurement Savings by the Numbers
 
Strategic sourcing for optimal gscm
Strategic sourcing for optimal gscmStrategic sourcing for optimal gscm
Strategic sourcing for optimal gscm
 
Full Presentation
Full PresentationFull Presentation
Full Presentation
 
Ryder Systems Inc
Ryder Systems IncRyder Systems Inc
Ryder Systems Inc
 
Introduction to supply chain management
Introduction to supply chain managementIntroduction to supply chain management
Introduction to supply chain management
 
About SCLinx
About SCLinxAbout SCLinx
About SCLinx
 
SCLinx Incorporated - April 2015
SCLinx Incorporated - April 2015SCLinx Incorporated - April 2015
SCLinx Incorporated - April 2015
 
Game Changing Quality Strategies that Drive Organizational Excellence
Game Changing Quality Strategies that Drive Organizational ExcellenceGame Changing Quality Strategies that Drive Organizational Excellence
Game Changing Quality Strategies that Drive Organizational Excellence
 
Carson Distribution Inc.
Carson Distribution Inc.Carson Distribution Inc.
Carson Distribution Inc.
 
Growth Strategy
Growth StrategyGrowth Strategy
Growth Strategy
 
The Power of Discovery for Increasing Win Rates
The Power of Discovery for Increasing Win RatesThe Power of Discovery for Increasing Win Rates
The Power of Discovery for Increasing Win Rates
 
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...HML's Interest-Only Mortgages Presentation to the Building Societies Associat...
HML's Interest-Only Mortgages Presentation to the Building Societies Associat...
 
Ma presentation nwef final
Ma presentation nwef finalMa presentation nwef final
Ma presentation nwef final
 
Mergers and Acquisitions: Preparing for Change
Mergers and Acquisitions: Preparing for Change Mergers and Acquisitions: Preparing for Change
Mergers and Acquisitions: Preparing for Change
 
Vision Mission under strategic management PPT.ppt
Vision Mission under strategic management PPT.pptVision Mission under strategic management PPT.ppt
Vision Mission under strategic management PPT.ppt
 

Beacon Roofing Supply Acquires BlueLinx

  • 1. Beacon Roofing Supply Inc. Group One | Acquisition Team Molly Cooney, Chelsea Krogwold, Benjamin Lindberg, Justin Pittman, Tyler Walimaa
  • 2. Presentation Agenda • Our Strategic Direction • Acquisition Options • Selection Criteria | Acquisition Candidates • Rationale for Acquiring BlueLinx • SWOT | Target Market | Properties | Suppliers | Employees | Financial Analysis • Valuation and Purchase Price • Valuation | Purchase Price | Financing • Integration of BlueLinx • Integration Timeline | Properties | PPE | IT | Employee Release | Orientation and Training | Culture | Benefits | Rebranding Strategy | Contingency Plans | Communication Plan • Conclusion • Questions 2
  • 3. Strategic Direction Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 3 Customer Service Geographic Expansion Product Mix Diversification Acquisition Strategy
  • 4. Selection Criteria  Customer Focus  Geographic  Product mix diversification  Culture  Synergy opportunity  Vertical acquisition opportunity  Financial risk  Seasonality  Turnaround Criteria Custom er Focus Geographic Diversification Vertical Culture Risk Seasonality Synergy Turnaround Totals Weight 10 9 8 5 9 7 6 8 5 Real Goods Solar 70 45 40 50 45 42 30 40 35 397 Quanex 80 54 48 60 54 49 48 48 40 481 BlueLinx 90 90 80 50 72 63 42 64 45 596 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 4
  • 5. Pros • Customer Focus Cons • Lack geographic locations • Minimal product diversification • Low synergy opportunity Real Goods Solar Pros • Geographic locations • Culture • Synergy opportunity Cons • Turnaround • Minimal product diversification • Seasonality Quanex Pros • Customer focus • Geographic locations • Culture • Synergy • Product diversification Cons • Unstable financial situation BlueLinx Acquisition Candidates Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 5 Purchase Price: $250 million
  • 6. Marketing – SWOT Analysis Beacon SWOT Analysis BlueLinx SWOT Analysis Strengths Weaknesses • Financial flexibility • Customer service focus • Customer relationships • Highly leveraged capital structure Weaknesses Strengths • Cyclical revenue stream • Limited product mix • No Mexico, Wisconsin, Manhattan locations • Interior products reduce cyclical sales • Diverse product mix • Mexico, Wisconsin, Manhattan locations • Customer service focus Opportunities Opportunities • Diversification of product mix • Geographic expansion • Geographic expansion Threats Threats • Competition • Economic downturn • Insolvency • Competition • Economic downturn Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 6
  • 7. Marketing – Target Market Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Beacon  Contractors  Commercial  Residential  Exterior Builders  Re-roofing contractors BlueLinx  Contractors  Commercial  Residential  Exterior Builders  Interior Builders  Retail home project consumers  Industrial and manufactured housing 7
  • 8. Management – Properties Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions • 55 locations • 52 warehouses • 3 sales centers • HQ - Atlanta, GA • 265 locations • HQ - Herndon, VA • 308 locations • HQ – Herndon, VA BlueLinx Locations Beacon Locations Combined Locations Consolidation • BlueLinx HQ • 9 BlueLinx warehouses • 2 Beacon warehouses 8
  • 9. Beacon Headquarters Beacon Locations BlueLinx Headquarters BlueLinx Locations Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Management – Properties Key New Markets Recommended Closures
  • 10. Management – Properties Warehouse Consolidation  One time gain from sale of properties: $74,735,594  Cost savings of $4,162,712 Headquarters Consolidation  Sublease for remaining 10 year lease  $29,700,000 rent collected  Total tax expense of $1,282,160  Cost savings of $1,155,000 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 10
  • 11. Management – Suppliers Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 11  Roofing  Windows  Insulation  Siding Combined 216 suppliers Roofing Insulation Structural framing Interior Supplies Doors and trim Outdoor living Siding Windows  Roofing  Insulation  Outdoor living  Structural framing  Interior supplies  Doors and trim Beacon Suppliers: 16 BlueLinx Suppliers: 750
  • 12. Management – Suppliers  Reasons for supplier consolidation  Suppliers do not have capacity to fill combined purchase orders  Suppliers providing duplicate products  Economies of scale from larger purchase orders  Enhanced pricing flexibility Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 12
  • 13. Human Resources – Employees • 1,700 employees • -578 union BlueLinx • 3,179 employees • -35 union Beacon • 4,503 employees • -613 union Combined 13 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Reductions: 376 employees
  • 14. Human Resources – Employees Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  $28 million savings from wages and benefits  $7.7 million expenditure on employee release  Net effect: $20.3 million savings 14 Savings 28,000,629$ Expenditures Outplacement Services 1,282,000 Severances - Executive 4,810,000 Severances - Nonexecutives 1,577,596 Net Effect 20,331,033$ Employee Consolidation effect
  • 15. Human Resources – Employees Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Total cost of new employees added to Beacon’s payroll: $79.4 million 15 Salaries/Wages Sales 19,367,040$ Branch Management 15,799,000 Warhouse/CDL 20,457,360 General Admin. 5,118,960 VP of BlueLinx 300,000 Benefits 18,312,708 Net Cost 79,355,068$ Retained BlueLinx Employees
  • 16. Financial Analysis – Income Statement 4th and 5th ranked market share in 2014 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 16
  • 17. Financial Analysis – Income Statement Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Industry leader in 2017 1 Beacon 2 ABC 3 ProBuild 4 Allied 5 84 Lumber 6 Builders 7 HD Supply 8 L&W Supply 9 Roofing Supply Building Supply Market Share Rankings $5.3 Billion 17
  • 18.  Initial decrease in gross profit Financial Analysis – Income Statement Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon 594,279$ 651,958$ 715,235$ 784,653$ 860,809$ 23.28% 23.28% 23.28% 23.28% 23.28% BlueLinx 235,370$ 241,692$ 248,184$ 254,850$ 261,696$ 11.58% 11.58% 11.58% 11.58% 11.58% Combined 577,400$ 948,161$ 1,064,824$ 1,293,404$ 1,523,490$ 17.90% 19.40% 20.09% 22.40% 23.90% Gross Profit Projections *dollar amounts in thousands  Increase in gross profit from  Supplier consolidation  Economies of scale  By 2019, gross profit will be better than pre-acquisition 18
  • 19.  Initial operating income drops from 5.48% to 1.73%  Operating income increases from:  Consolidation of fixed assets  Consolidation of administrative expenses  Fixed expenses spread over more sales  Synergy results in operating income (percentage of sales) over 9% by 2019 Financial Analysis – Income Statement Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 19
  • 20.  Net income lower in first year from:  Interest expense  Acquisition expenditures  Increases as:  Economies of scale take affect  Consolidation of assets  Consolidation of people  Decreasing interest expense Financial Analysis – Income Statement Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 20
  • 21.  Low cash from aggressive debt reduction  Increased risk from diminished liquidity  Limited expansion options  Until 2019 when 93% of debt is paid off  Low interest expense  Increased financial stability  Broad expansion options from financing flexibility Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 21
  • 22. Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 22
  • 23.  Low leverage (40% debt)  Able to finance growth with debt Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 23
  • 24.  High leverage (107% debt)  Financially unstable  Limited growth options Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 24
  • 25.  Medium leverage (57% debt)  More risky than Beacon  Less risky than BlueLinx  Temporarily limited financial flexibility Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 25
  • 26.  Initially, high LT debt balances (June 1st, 2015):  $290 million Beacon LT debt  $438 million BlueLinx LT debt  $140 million new debt Financial Analysis – Balance Sheet Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Aggressive debt reduction  New opportunities for major growth by 2018-2019  $50 million LT debt remaining 26
  • 27.  Higher operating cash flows resulting from  Consolidation of administrative expenses  Economies of scale  The higher cash flows following acquisition are critical for  Debt reduction  Financial flexibility from enhanced liquidity Financial Analysis – Cash Flows Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon 84,537$ 91,449$ 98,997$ 107,242$ 116,353$ BlueLinx (1,896) 157 742 99 (837) Combined 46,758 197,282 217,604 310,041 306,294 Operating Cash Flows *numbers in thousands 27
  • 28.  Beacon investing cash used on fixed assets, organic growth and minor acquisitions Financial Analysis – Cash Flows Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon (89,191)$ (93,996)$ (99,431)$ (105,573)$ (112,513)$ BlueLinx 12,881 10,735 7,618 2,975 (2,659) Combined (200,204) (53,488) (60,504) (68,429) (77,382) Investing Cash Flows *numbers in thousands  BlueLinx investing cash provided by sale of property, plant and equipment to maintain solvency  Beacon with acquisition,  Acquisition of BlueLinx in 2015  Reduced investing expenditure 2016-2019 to concentrate cash on debt reduction 28
  • 29.  Beacon currently makes little use of financing cash flows  Has financing options for growth  Combined,  2015, increase in debt due to acquisition  2016-2019, aggressive debt reduction Financial Analysis – Cash Flows Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon 1,341$ 3,590$ (6,444)$ (9,218)$ (6,123)$ BlueLinx (10,975) 10,938 (8,360) (2,624) 4,070 Combined 104,210 (138,898) (135,779) (191,678) (161,473) Financing Cash Flows *numbers in thousands 29
  • 30.  Reduced liquidity 2015-2018  Still above 1.00  Sales growth drives increase in short- term assets to counterbalance short- term liabilities  Enhanced liquidity by 2019 Financial Analysis – Key Ratios Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 30
  • 31.  Increased debt burden decrease interest coverage ratio to 2.64  Will stay above minimum (set by management) of 1.5  As sales increase and debt decreases, interest coverage increases  By 2019, interest coverage ratio will be 280 times. Financial Analysis – Key Ratios Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 31
  • 32.  2015: ROE, ROA, ROIC lower with acquisition  2016-2019: ROE, ROA, ROIC higher with acquisition Financial Analysis – Key Ratios Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon 8.43% 8.26% 8.11% 7.98% 7.87% BlueLinx - - - - - Combined 5.63% 13.84% 13.11% 15.86% 16.99% Return on Equity Beacon 5.03% 5.06% 5.02% 4.94% 4.88% BlueLinx -0.19% 0.01% 0.04% -0.20% -0.60% Combined 2.43% 6.80% 7.45% 10.52% 12.90% Return on Assets Beacon 10.46% 10.47% 10.23% 9.79% 9.46% BlueLinx -0.82% 0.03% 0.26% -1.66% -6.32% Combined 5.19% 16.38% 18.08% 26.55% 31.90% Return on Capital 32
  • 33.  Net positive synergies of $137.8 million in first five years  $28 million FTE reduction  $81.5 million facilities consolidation  $0.7 million economies of scale  $41.7 million additional sales  $19 million lost customers  $4.9 million restructuring cost Financial Analysis – Synergies Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions ($ in millions) 2015 2016 2017 2018 2019 FTE Reductions 28.0$ Facilities Consolidation 12.2 48.9 20.4 - - Economies of Scale 0.1 0.1 0.1 0.2 0.2 Additional Sales 5.3 8.0 8.6 9.4 10.4 45.5$ 57.0$ 29.2$ 9.6$ 10.6$ Loss of Customers (19.0) Restructuring Cost 4.9 - - - - 31.4$ 57.0$ 29.2$ 9.6$ 10.6$ Net % of target SG&A 13.96% 24.88% 12.52% 4.04% 4.38% Net Synergies Synergy Summary Positive Synergies Negative Synergies 33
  • 34.  $250 million purchase price  Payback period: 3.08 years Financial Analysis – Return on Investment Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 2015 2016 2017 2018 2019 Beacon Net Income Without Acquisition 78,495$ 86,615$ 95,530$ 105,318$ 116,064$ Combined Net Income with Synergy 56,055 164,508 182,983 269,099 354,953 Gain from Acquisition (22,440)$ 77,893$ 87,453$ 163,781$ 238,889$ Return on Investment -14.38% 49.93% 56.06% 104.99% 153.13% (dollar amounts in thousands) Return on Investment and Payback Period 34
  • 35. Valuation of BlueLinx TEV/EBITDA • $164,373,000 • 7.7x EBITDA Multiple • $124,700,000 • 5.5x EV/Sales • $494,800,000 • 0.44x DCF • $92,700,000 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 35 Market Capitalization: $102.8 million
  • 36. Purchase Price  Initial offer:  $150,000,000 to $250,000,000  37% - 129% premium  Drop-dead price:  $350,000,000  221% premium Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 36
  • 37. Financing  $250,000,000 purchase price  Senior term loan: $140,000,000  Line of credit: $50,000,000  Cash $60,000,000  Interest rate on new debt: 4.00% LT Debt 56% LOC 20% Cash 24% BlueLinx Acquisition Financing Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 37
  • 38. Integration Timeline Day One Agenda  Dissolve Board of Directors  Employee Release Letter  Press Release  Property consolidation begins  Letter to retained suppliers  Letter to customers  Begin benefit integration  Videoconference and teleconference with employees  Begin installing video conferencing software into newly acquired locations 38 Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions *Refer to pg. 24 in BlueLinx Acquisition Information Packet for full Gantt Chart
  • 39. Management – Property Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  All properties being closed will be put up for sale on June 1st  All properties being closed will cease operations on June 30th  15% sold by Sept. 30th, 2015  60% sold during fiscal 2016  25% sold during fiscal 2017 15% 60% 25% Property Sale Time Frame By Year End 2015 By Year End 2016 By Year End 2017 39
  • 40. Management – PPE Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Equipment and Fleet  Beacon  863 straight trucks, 312 tractors, and 641 trailers  BlueLinx  480 tractors and 700 trailers  Combined, BlueLinx will increase our tractors by 65% and our trailers by 91%  Additional equipment obtained on 7-9 year lease from current supplier 40 Inventory  Inventory will be moved to the closest locations  June 8th-June 30th  Engage BlueLinx employees in the consolidation process
  • 41. Management – IT System Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  BlueLinx also uses the AS400 information system  System integration cost of $250,000  IT integration, June 5th – June 30th  System merge  Beta testing  Final launch 41
  • 42. Human Resources – Orientation and Training Cost of orientation and training: $100,000 Orientation  Employees complete orientation within one month  Via Adobe Connect video conferencing software (in BlueLinx locations during first week)  Brochures and Information Booklets  Leadership Development Program, Union information, Culture, Products Training  Leadership Development Program  Travel to acquired locations  Videoconferencing to Branch Managers  Training branch employees by branch managers  Sales employees  Face to face training with Robert McKagen and Brenden Daly Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 42
  • 43. Human Resources – Culture Culture Integration Integrity Teamwork Continuous Improvement Passion Teamwork Integrity Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 43
  • 44. Human Resources – Benefits BlueLinx • Medical • Dental • Vision • Vacation • Paid holidays • Disability insurance • 401(k) • Life insurance • FSAs Beacon • Medical • Dental • Vision • Vacation • Paid holidays • Disability insurance • 401(k) • Life insurance • Paid sick days Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 44
  • 45. Marketing – Rebranding Strategy  Ultimately, BlueLinx rebranded as “BlueLinx a Division of Beacon”  BlueLinx a Division of Beacon:  Interior products  Structural  Doors and trim  Outdoor living Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 45
  • 46. Marketing – Advertising Budget Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 46
  • 47. Marketing – Rebranding Strategy Social Networks, Website Newsletter Catalog Online advertising, Trade shows, Direct mail Rebranding Strategy May 1st – June 1st Monthly, start 6/15 July 15th Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Ongoing 47
  • 48. Accounting and Finance – Contingency Plans  Complete benchmark guidelines p. 58 of “BlueLinx Acquisition Information” packet  3 consecutive years of missing benchmarks without economic downturn  Or interest coverage ratio less than 1.5  Employee reductions  Sale of assets including $330 million acquisition assets Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 48
  • 49. Communication Plan Shareholders Proxy Statement May 9th Employees Videoconference Teleconference Release Letter June 1st General Public Press Release June 1st Suppliers Supplier Calls Retain Letter Release Letter June 1st - June 8th Customers Customer Letter Customer Call June 1st - June 9th Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 49
  • 50. Communication Plan – Employees Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Beacon branches to be dissolved:  Videoconference June 1st, 11:00 a.m. EST  Christopher Harrison, Human Resources  All Beacon employees:  Videoconference June 1st, 12:00 p.m. EST  Paul Isabella, CEO Employees Videoconference Teleconference Release Letter June 1st 50
  • 51. Communication Plan – Employees Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  BlueLinx locations to be dissolved:  Teleconference June 1st, 12:30 p.m. EST  Christopher Harrison, Human Resources  All BlueLinx Employees:  Teleconference June 1st, 1:00 p.m. EST  Paul Isabella, CEO Employees Videoconference Teleconference Release Letter June 1st 51
  • 52. Communication Plan – General Public Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Press release  Released on Beacon website  Available on June 1st, 2:00 p.m. EST General Public Press Release June 1st 52
  • 53. Communication Plan – Suppliers Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Suppliers retain letter  All Beacon suppliers and 200 BlueLinx suppliers to be retained  Sent on June 1st  Supplier release contact  Phone contact by purchasing department on June 2nd – June 5th  500 BlueLinx suppliers  Supplier formal release letter  Sent on June 8th Suppliers Supplier Calls Retain Letter Release Letter June 1st - June 8th 53
  • 54. Communication Plan – Customers Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions  Customer letter  Sent to all customers on June 1st  Major customer calls  Calls made by sales agents on June 2nd and 9th Customers Customer Letter Customer Call June 1st - June 9th 54
  • 55. The acquisition of BlueLinx will provide Beacon with opportunity for net positive synergies of $137.8 million Conclusion Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 55 ($ in millions) 2015 2016 2017 2018 2019 FTE Reductions 28.0$ Facilities Consolidation 12.2 48.9 20.4 - - Economies of Scale 0.1 0.1 0.1 0.2 0.2 Additional Sales 5.3 8.0 8.6 9.4 10.4 45.5$ 57.0$ 29.2$ 9.6$ 10.6$ Loss of Customers (19.0) Restructuring Cost 4.9 - - - - 31.4$ 57.0$ 29.2$ 9.6$ 10.6$ Net % of target SG&A 13.96% 24.88% 12.52% 4.04% 4.38% Net Synergies Synergy Summary Positive Synergies Negative Synergies
  • 56. By acquiring BlueLinx, over the next 5 years, Beacon will  Increase sales by 65%  Increase net income by 114.11%  Increase EBITDA by 92.13% Which will,  Increase our profitability  Stabilize our financial position  Assume the position of the largest building supply distributor in the U.S. Conclusion Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 56 Sales Net Income EBITDA No Acquisition 15,494$ 482$ 1,016$ Acquisition 25,562 1,032 1,952 Difference 10,068$ 550$ 936$ % Gain 64.98% 114.11% 92.13% 5 Year Net Impact
  • 57. Conclusion Strategic Fit • Customer Focus • Product mix diversification • Geographical expansion Competitive Differentiation • Enhanced competitive position • Sustainable competitive advantage • Increased market Share Enhanced Financial Performance • Increased profitability • Enhanced financial flexibility Increased Shareholder Value Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions Strategy Results BlueLinx 57
  • 58. Questions? • Management – Chelsea Krogwold • Human Resources – Molly Cooney • Marketing – Justin Pittman, Tyler Walimaa • Finance and Accounting – Ben Lindberg Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions 58