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
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
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
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