Stock Building Supply emerged from a pre-packaged Chapter 11 bankruptcy proceeding in just 55 days in order to accommodate its acquisition by The Gores Group. This type of expedited bankruptcy allowed Stock to reject unnecessary leases, restructure its debt, and emerge debt-free to facilitate its acquisition and turnaround. Since then, Stock has streamlined its operations, standardized processes, upgraded its talent, integrated acquisitions, and expanded its product offerings and credit facilities to resume growth following the housing market collapse.

1. Corporate Corner
“
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tock Building Supply, a portfolio com-
pany of the Gores Group, has a long
track record with M&A. Founded in
1922 as Carolina Builders Corp., the
building materials company was ac-
quired by London-based Wolseley plc in 1985. Over
the next 20 years, Stock completed 73 acquisitions,
and was the first to boast a coast-to-coast footprint.
At its peak, in 2006, the company generated $6
billion in revenue, and operated out of 340 locations,
scattered throughout 34 states. Then came the col-
lapse of the US housing market.
Wolseley, seeking to trim its exposure to the do-
mestic housing market, put the company up for sale
in 2008. To accommodate the buyer, Los Angeles-
based Gores, Stock went through a pre-packaged
Chapter 11 reorganization, exiting bankruptcy just
55 days later. All unsecured vendors were made whole
as part of the reorganization, while Stock has since
maintained a debt-free balance sheet. The trimmed
down Stock – with revenues of $2 billion, and 59 lo-
cations in 12 states – is back on the growth track. The
Corporate Corner caught up with Jim Major, senior
vice president and chief financial officer, and Bryan
Yeazel, SVP, general counsel and corporate secretary,
to discuss the benefits of a pre-packaged Chapter 11
process and lessons from the business cycle.
CC: Can you explain the type of bankruptcy proceeding
that you recently went through?
Major: Stock went through a “pre-packaged” Chap-
ter 11 bankruptcy reorganization. All of the creditors
necessary to approve the reorganization plan had ap-
proved it before Stock filed the plan and we were in
and out of bankruptcy in 55 days. “Pre-packaged”
bankruptcies accounted for roughly six percent of
all bankruptcies in the last decade, but that number
has risen in the last two years. Stock had a relatively
simple capital structure (single shareholder with no
third-party debt) that made it possible.
CC: What are the advantages?
Major: There are many reasons it made sense. Man-
agement retains control of the business during the re-
organization; it is quicker and less disruptive; and, it
is usually cheaper because of its shorter duration. We
also used this approach to reject a large number of
leases the reorganized business did not need.
CC: How did you manage to get through the bankruptcy
without all creditors being equally affected?
Yeazel: Under Section 502(b) (6) of the Bankruptcy
Code, debtors are permitted to reject executory con-
tracts, including leases, and pay lease damages rang-
ing from one to three years of rent. We had a decision
about whether to impair multiple classes of creditors or
merelytousethereorganizationprocesstorejectcertain
executory contracts. We chose the latter, more focused
approach because it was important to our reputation
and we believed it would accelerate the process.
CC: What were the benefits of the corresponding struc-
tural change?
Major: We had over 50% more capacity in our
branch network than we needed, and the associated
infrastructure costs, such as leases, utilities, security, et
cetera, were suffocating. We rationalized our branch
network and reorganized. By doing so, we brought the
infrastructure costs in line with the actual throughput
of the business, which allowed us to survive, re-gain
34 MERGERS & ACQUISITIONS January 2011
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2. “
”
our footing and position the company for growth.
CC: What operational changes have you made as a re-
sult?
Major: The first major initiative we launched was ‘The
Stock Way.’ This was a coast-to-coast operational effi-
ciency and standardization project. We formed a team
comprised of some of our more talented associates to
spend four to six weeks in each market optimizing
the business. We had integrated our acquisitions bet-
ter than most in our industry, but this process gave
us a consistent look and feel in every area from how
a lumber yard appears cosmetically to how we service
our customers.
CC: I know you worked hard to keep your top performers
on board during the transition. What else have you done
on the people side of the business?
Yeazel: We launched a significant initiative to drive a
high-performance culture. This required a fundamen-
tal shift in the way we view and value the organiza-
tion’s talent, associate compensation and communi-
cation with our constituencies. This type of change is
not binary — it’s not like flipping a switch. You need
to work at it persistently over an extended period of
time in order for the organization to understand it is
the ‘new normal.’
CC: What changes have you made in your due diligence
and integration processes?
Yeazel: We approach diligence in a more scrutinizing
manner than prior to the reorganization. Our dili-
gence teams are broader
withmorecross-functional
experience. We have done
two acquisitions since
our reorganization. We
significantly widened the
diligence aperture to make
sure we are making sound
investments that generate
the desired return.
CC: What other lessons did
you learn from this business
cycle?
Yeazel: Insularity stifles innovation and can kill a
company. Organizations cannot survive significant
headwinds without a stable of intelligent, motivated
people and a management team with complementary
— but nonetheless diverse — backgrounds. We made
concerted efforts to bring new and different voices to
our team.
One of our top priorities after the reorganization was
to assess the quality of the company’s talent in an ear-
nest, constructive and proactive manner. This type of
introspection is not without pain, but ultimately was
necessary for the company to achieve full potential. In
furtherance of the objective, we hired a new recruiter
and trained our managers on top-grading methodol-
ogy to ensure we hire the best talent in the industry as
the market recovers.
CC: What actions have you taken to resume growing the
company?
Major: With cash from the sale of non-strategic busi-
nesses, Stock purchased two leading Arkansas and
Houston residential suppliers out of bankruptcy, add-
ing to its presence in some of the fastest growing mar-
kets in the country.
Stock has aggressively expanded several of its high-
margin divisions, and with the support of The Gores
Group, has also invested in a proprietary logistics sys-
tem that has increased efficiency and customer service
across each of its locations.
A $150 million credit line was also recently ex-
tended to 2014 at very favorable rates, placing the
company in the enviable position to ramp up receiv-
ables and inventory as needed to support the home
building recovery.
Introducing the Corporate Corner
Patti Gillenwater, CEO of executive search and development firm
Elinvar, and Tom Walton, a managing director with Wisconson-based
corporate development advisory firm Hanley, Hammill, Thomas, will
be discussing best practices and strategies each month. The focus is
on the work after the deal, the heavy lifting that will ultimately make or
break the acquisition. If readers have a story to share, emails can be
sent to Patti, patti@elinvar.com, and Tom, tomwalton@me.com.
January 2011 MERGERS & ACQUISITIONS 35
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