| BUILDERS FIRSTSOURCE GOES ON THE BLOCK |
| DALLAS — A New York-based investment firm that owns a large majority stake in Builders FirstSource, the 12th-largest home improvement retailer in the U.S., has decided to sell this pro dealer, based here, in a deal that could fetch more than $800 million.The Deal.com, a leading publication that covers merger and acquisition activities, first reported that JLL Partners, a private equity firm that acquired what is now Builders FirstSource in 1998 and currently owns 90% of the company, has put that company — with 86 retail locations and 60 distribution facilities in 11 states — on the auction block. JLL's senior managing director, Ramsey Frank, told that publication that his company had hired two banks, DeutscheBank and UBS, to find buyers for the retailer.
Frank estimates that the sale of Builders FirstSource could bring a price equal to seven or eight times its $115 million in projected cash flow for 2004, or between $805 million and $920 million. He also states that Builders FirstSource is on track to generate $2 billion in revenue this year, which would represent an 18% gain over 2003 sales.
Despite skepticism over Builders FirstSource profitability, which has been voiced by competitors for years, Frank says the company has doubled its cash flow in the last two years. During that time, it has been consolidating its operations, with an eye toward cost control.
"Builders FirstSource is firing on all cylinders — it's having a great year — and is really hitting its stride," Paul Levy, JLL's founder, told Hardlines. Referring to Floyd Sherman, BFS's CEO, Levy says, "The management team has come together under Floyd's leadership. It has become one company. With its pro-only model, there are lots of opportunities for growth, especially as homebuilders [which are one of BFS's primary customers] get larger."
Levy went on to explain that JLL Partners is selling its holdings in BFS to give the retailer a chance to hook up with a larger partner, one that can help take it to the next level of growth. He expects that this will be a five-year process. "We aren't in the position, financially, to be able to stay on as investors for that long."
Levy added that JLL Partners decided against taking BFS public because that process would have required the equity firm to hold onto stock for three or four years. The Deal.com stated that JLL has invested $230 million into Builders FirstSource between 1998 and 2002, and that it hopes to recover between 2.7 and 3.2 times that investment if it manages to sell the company within this price range. |
| BACKGROUNDER: HOW BUILDERS FIRSTSOURCE BEGAN |
| SPECIAL REPORT — Builders FirstSource began in 1997 as Builders Supply & Lumber, which was owned at the time by Pulte Homes. That same year, JLL Partners, then called Joseph Littlejohn & Levy; and John Roach, the former chairman and CEO of Fibreboard Corp., co-founded a company called Stonegate Resources to acquire and operate companies in the building products industry. BSL was Stonegate's first acquisition.Since then, BFS has grown dramatically, primarily through acquisitions of regional pro dealers. During one four-week stretch in 2000, for example, the retailer bought four companies, and this year it transacted another series of acquisitions during the summer months. |
| HOME DEPOT URBAN STORE OPENS IN CANADA |
 NORTH VANCOUVER, B.C. — The first urban neighborhood store to enter Canada is also just the third overall in the Home Depot chain. But the company has high hopes for the future of the concept, a scaled down retail footprint with a merchandise mix tailored to the tastes and lifestyle of the city dweller. The launch of the store featured all the ambition and inspiration to reflect the toney aspect of the new store — and the vision of Home Depot's president in Canada, Annette Verschuren.
The setting was a posh fundraising reception, showcasing the retailer's commitment to Rick Hansen's Man in Motion Foundation. Hansen made history and became a national hero when he travelled across around the world in his wheelchair in 1985, raising $26 million for spinal cord injury research. He was on hand with Verschuren, and Home Depot's vice-president merchandising, John Costello, up from Atlanta to participate in the proceedings himself. Pop musician Jann Arden ended the evening with a private concert for the crowd.
The event also reflected Verschuren's desire to realize a retail concept that would give a community the means, both imaginatively and practically, to transform their homes and their lives. "This store has been 10 years in the making," she told Hardlines just before the event got under way.
 The Home Depot at Park Royal center, directly across the Lion's Gate Bridge from Vancouver's Stanley Park, is smaller, more upscale, more décor driven than its big box predecessors. It has very little in the way of building materials, the space being devoted instead to kitchen and bath, lighting — lots of lighting, ceiling fans, locksets, décor bath accessories, and stuff one doesn't usually see in a big box, but stuff that's fast becoming regular fare to Home Depot shoppers — including storage, cleaning products and large appliances.
But this urban concept takes décor and accessories to a new level: knick knacks, dried flowers, vases, window coverings, and enough tea lights to fill an Ikea store.
A common feature of the urban concept, as it shoehorns its merchandise into the smaller footprints of scarce, costly downtown real estate, is to go up, not out. In Chicago, for example, an urban store in the toney Lincoln Park neighborhood is on two full floors. The new North Vancouver store has a mezzanine around the edge, giving a clear view of the centre of the store. |
| LOWE'S SEES CLEAR SKIES FOR NEXT TWO YEARS |
| NEW YORK — Lowe's Cos. is forecasting double-digit revenue growth through 2006, and anticipates that its earnings per share during that period will exceed estimates previously made by analysts and the company itself.The Mooresville, N.C.-based dealer told analysts at a recent meeting here that it expects its earnings per share to rise by between 15 and 16% in 2004, by 21 to 24% in 2005 and by 18 to 20% in 2006.
Ironically, those earnings projections were made at a time when Lowe's has been trying to stimulate more sales by promoting its "Everyday Lowe Price" guarantee, which is all over its biweekly ad circulars and TV commercials. Company officials told analysts that the chain has rolled back prices on more than 1,200 items in its stores recently. They also revealed that Lowe's is testing new checkout technology of the kind that rival Home Depot installed chain wide last year.
The two giants continue to wage pitched battles for the hearts, minds and disposable incomes of customers across the U.S., especially in larger metro markets where Lowe's is focusing its expansion. It plans to open 150 stores in 2005, and 160 in 2006, during each year its revenue is projected to increase by 16%.
Several analysts responded positively to Lowe's message, and recommended that their investor clients buy the retailer's stock. However, one of Lowe's biggest recent boosters, Aram Rubinson of Bank of America, maintains his "neutral" rating for the company, even as he raised his own estimates about that stock's selling price to $56 per share (it was trading at $54.82 on Thursday morning). |
| TIM-BR-MARTS HEAD SEEKS BUYING GROUP CONSOLIDATION |
| CALGARY — Speculation continues to surface about possible consolidation among Canada's LBM buying groups. However, Hardlines has been unable to uncover any substantiation to said rumors.The industry is dominated by a few large "umbrella" buying groups. For example, Matreco consists of four member groups: Tim-BR-Marts Ltd., TIM-BR Mart Ontario, Le Groupe BMR and AWARD/TIM-BR Mart Atlantic. Excluding Western-based Tim-BR-Marts, the group is further allied as equity partners in Quincaillerie Matreco Hardware, a new hardware distribution business to supply Matreco dealers.
But any efforts to unite these members — or any other groups — more substantively have yet to bring results.
"I have gone on record by stating that there are too many independent buying groups in Canada which compete against each other," says Tim Urquhart, president and general manager of Tim-BR-Marts." He joined as head of the group at the end of last year, but for years before that, the groups have been talking about further unification.
That includes groups such as Castle and Sexton, who are members, along with five other groups, of the umbrella buying organization, the Reliance Buying Group. In fact, more than one buying group insider over the past couple of years has admitted that "everyone is talking with everyone," and many of the groups, agree, at least philosophically, in the benefits of one group joining with another.
Meanwhile, Reliance members have been using their combined buying power to negotiate better with key commodity suppliers. Matreco members have been pulling together their marketing and branding efforts more closely. "We continue to be aggressively marketing the TIM-BR Mart program, expanding the TIM-BR Mart program," says Tom Smith, president and CEO of AWARD. But he doesn't expect to go as far as his counterpart in Ontario, which converted the operating name and branding for the majority of its dealers from Homecare to TIM-BR Mart Ontario. Although about two-thirds of AWARD's 95 dealers already carry the TIM-BR Mart banner, Smith plans to co-brand AWARD and TIM-BR Mart.
The specter of a common foe, traditionally the big boxes, and now Rona, is reinforcing a sense of purpose, at least for the likes of Urquhart, who believes further consolidation will provide direct benefits for the groups. "It is time for the independent dealers to band together and recognize their strength," he told Hardlines. "To that end, we are talking with anyone who is willing to do the right thing for the dealers they represent."
For now, however, growth for Urqhuart's group continues to come one dealer at a time. "At this point, we do not have an agreement with any other buying group in Canada. What we are doing is growing our business by recruiting heavily in Western Canada, and the addition of 32 new locations (so far) attests to that." |
| HOME HARDWARE PLANTS TREES FOR 40TH BIRTHDAY |
ST. JACOBS, Ont. — Home Hardware Stores Ltd. has partnered with the Tree Canada Foundation to plant 40 trees in 40 communities across the country, as the number-three home improvement retailer in Canada celebrates its 40th anniversary. Last week, the dealer-owned wholesaler, which has more than 1,000 stores across Canada and annual retail sales of $3.8 billion, undertook a massive one-day, nationwide tree planting campaign. Among the sites selected for planting were communities affected by natural disasters, including areas ravaged by forest fires in Kelowna, B.C. (shown here), the Emerald Ash Borer infestation in Southern Ontario, and Hurricane Juan in Nova Scotia and Prince Edward Island.
Other sites included Home Hardware's own distribution facilities in Debert, N.S.; St. Jerome, Que.; Kitchener and St. Jacobs, Ont., and Wetaskiwin, Alta. "Our dealers and staff agreed that the best way to celebrate our anniversary was to create a living legacy, by rebuilding the local scenery in some of the many communities that we call home," said Paul Straus, vice-president and CEO of Home Hardware Stores in a prepared release.
Home Hardware has worked with Tree Canada Foundation for the past six years. In addition to the planting of thousands of native evergreen seedlings, the company has donated more than $70,000 to Tree Canada. |
| ACE DEALER TAKES AIM AT BIG BOX COMPETITION |
| MARSHFIELD, Mass. — Facing tough competition from the arrival of big box retailers, Taylor Lumber/ACE Hardware has launched a number of new marketing programs, expanded customer focused care, and continued creative community involvement.The 50-year-old family run hardware store and lumberyard serves both professional contractors and DIYers. It puts a lot of value in cultivating its roots in the local community. For example, a monthly women's afternoon, held on the first Monday of each month, helps underscore Taylor's community outreach and extra effort to provide step by step home improvement project tips.
Additionally, Taylor has put together a "Trusted Contractors" program that offers a wide range of local tradesman — from carpenters to plumbers. The program includes only trusted contractors with whom Taylor has developed a long-standing relationship.
This local lumber and hardware store also launched "Taylored to Non-Profits," a promotion that offers special discounted pricing for non-profit organizations. Recently, it even sponsored the "Great Doghouse Construction Contest" at the Marshfield Fair, raising funds for the local animal shelter.
The retailer is also focused on local job creation, with a program of internships and part-time opportunities for high school and college students. These student interns get on-the-job training throughout the year. |
| RECORD NUMBER OF FIRMS SIGN ON FOR NEXT LONDON DIY SHOW |
| INDIANAPOLIS, Ind. — A record number of American and Canadian firms will be exhibiting in the DIY & Garden/Totally Tools exhibition at Earl's Court in London in January.For the second year, the Worldwide DIY Council, a trade association comprised of American and Canadian active exporters, is sponsoring a group pavilion at the fair. Based on their successful pavilion last year, the number of participating exhibitors is expected to double.
Manufacturers participating in the DIY Council's pavilion include: Allway Tools, Gardner-Gibson Co., H. F. Staples Co., Intermatic, Iron Out, Johnson Level & Tool, Rust-Oleum, and Zircon. Products range from the basics to the unique and unusual, including everything from mosquito control products to levels and other tools, including the latest in electronic tools. Other DIY Council members who will be exhibiting on their own or with their agents/distributors include AccuSharp International, Arrow Fastener, Better Living Products, Empire Level, and Knape & Vogt.
In addition to those members exhibiting with the Worldwide DIY Council, other members are exhibiting on their own or with local agents/distributors. The DIY Council will also host two of America's largest hardware wholesalers, Ace Hardware and TruServ Corp.
For more information about the Worldwide DIY Council, click here. |
|
| WILL HOME DEPOT BUY
BUILDERS FIRSTSOURCE? |
| SPECIAL REPORT — There are several competitors that might be interested in acquiring Builders FirstSource, the 12th-largest home improvement retailer in the U.S. These include Stock Building Supply, Lanoga Corp., and 84 Lumber, all of which are in acquisition modes."Obviously, it's of great interest to all of us who are players in the pro builder market," says Paul Hylbert, president and CEO of Lanoga. However, he would not speak anything further about BFS specifically, pointing out that it would be "inappropriate to comment on any intentions or negotiations our company may undertake with any other player."
Other acquisitive companies, such as The Strober Organization or Bradco Corp., which recently bought a piece of the Wickes company, may decide to throw their hats into the ring, if for no other reason than to test the waters. Industry publication The Deal.com identified several equity companies that could be buyer candidates, too. Levy said that preliminary interest in Builders FirstSource has been strong, "and there's been enormous interest from the financial community."
Another possible buyer could be Home Depot, which has been acquiring pro-oriented companies for its Home Depot Supply division, and has stated publicly its goal of increasing significantly its market position as a supplier of building materials to contractors and homebuilders. Company officials have stated privately that Home Depot's goal is to build its pro business to represent as much as half of its annual sales eventually.
Paul Levy, founder of JLL Partners, the private equity firm that owns 90% of Builders FirstSource, told Hardlines that Builders FirstSource could be a perfect fit for Home Depot. This would allow the warehouse giant to achieve top-to-bottom penetration into the entire housing and home improvement sectors. Levy also believes that Home Depot would let BFS's management team run the business more independently than might another large pro dealer, if it were to acquire the company.
He adds that it's "realistic" to expect that the buyer for Builders FirstSource would emerge and a deal would be signed by the end of this year. |
| COMPANIES IN THE NEWS |
| ATLANTA & VANCOUVER — Home Depot employees donated more than 250,000 volunteer hours through community service projects last week, in a series of volunteer community improvement projects throughout the United States, Canada, Mexico and China. Calling it the "Week of Service," more than 1,000 projects, in association with national non-profit partners Hands On Network and KaBOOM!, were undertaken as part of Home Depot's 25th anniversary celebrations. In Canada, 2,200 of the company's associates participated in more than 100 volunteer community improvement projects.BRENTWOOD, Tenn. — Tractor Supply Co., the largest retail farm and ranch store chain in the United States, has reported net sales for the third quarter ended September 25 of $426 million, up 18.1% from $361 million last year. The company anticipates net income to be between $8.5 and $9.5 million. Same-store sales increased 10.1%, versus last year's 13.7% gain.
MINNEAPOLIS — Waters Instruments Inc. has acquired, through its Zareba Systems Europe subsidiary, Rutland Electric Fencing Co., the largest manufacturer of electrical fencing products in the U.K. A family owned business, Rutland has 55 employees and annual sales of approximately $9 million. Waters Instruments just finished fiscal 2004 with sales of $24.2 million, up 5.2% from fiscal 2003. The company's goal is to reach $50 million by 2008.
TOLEDO, Ohio — Owens Corning will start building a greenfield light-density fiberglass insulation plant in the Southeastern United States. The facility, which will have a capacity for 150 million pounds per year, is part of OC's commitment to strategic capacity expansions. Production could begin as early as the third quarter of 2006.
TOWSON, Md. — Black & Decker has received the okay from all regulatory agencies governing anti-trust rules, for the purchase of Pentair's Tools Group, which includes the Porter-Cable, Delta, DeVilbiss Air Power, Oldham Saw, and FLEX businesses. The purchase price will be approximately $775 million in cash, and it's expected to close in early October. The Tools Group's sales and operating profit for 2003 were $1.08 billion and $82 million, respectively. B&D expects to gain annual cost savings of $65 million by the end of 2007.
LONDON, U.K. — Kesa Electricals, the division that was spun off of Kingfisher as its own entity last year, enjoyed a sales increase of 5% to £1,667.3m in the first six months of the year. Profit was up by 3.6% to £54.7m, with a 7.4% increase in constant currency. In the U.K., Comet saw sales increase by 7% to £637.7 million, growing its market share despite increased competition from other retailers. French chain Darty increased sales by 24% to £653.4 million.
HOFFMAN ESTATES, Ill. — Sears, Roebuck and Co. has closed the acquisition of ownership or leasehold interest in 50 stores from Kmart Holding Corp. Purchase price was $575.9 million, against which Sears has paid 30%, with the remaining 70% to be paid upon Sears taking possession of the stores. Sears will take possession of the stores in spring 2005 and the majority of the stores are expected to be converted by fourth quarter 2005. Sears will also acquire six additional off-mall locations from Wal-Mart.
LONDON, U.K. — Wal-Mart has admitted that it has sent a team of analysts to Russia to check out possible expansion there, says Reuters. The likely location for a first opening would be in St. Petersburg. "We've had a team in Russia looking into the possibilities, but we've not made any announcements and we will not comment on speculation," said Bill Wertz, a Wal-Mart spokesman in the United States.
MONTREAL — Forest giant Tembec has acquired 665,000 common shares of Riverside Forest Products Ltd., representing 7.05% of the outstanding shares of Riverside. The purchase was made for investment purposes.
CHICAGO — Wholesale supplier Grainger is implementing SAP enhancements to its supply chain. At a meeting of analysts held at Grainger's newest distribution center in Robbinsville, N.J., last week, Grainger chairman and CEO Richard Keyser provided an update on the company's technology investments, including its SAP installation and telephony program. These two initiatives are designed to help the company become more efficient at saving customers time and money when purchasing facilities maintenance products. |
| PEOPLE ON THE MOVE |
| Effective October 1, 2004, Jim Wright has assumed the role of CEO of Tractor Supply Co., the giant retail farm and ranch store chain. As part of a previously announced succession plan, Wright succeeds Joe Scarlett, who will continue to serve the company on a full-time basis as Chairman of the Board. Wright, 55, joined Tractor Supply Company in November 2000 as the President and COO. TORLYS Inc. recently made some organizational changes: Andre Tesolin, previously Vice-President of Operations, has assumed the newly created role of Business Development Manager. He is responsible for developing new, diverse opportunities for the company's flooring products in residential, domestic commercial and retail applications, and export markets. The role of Vice-President Operations has been restructured. Daily warehouse operations management responsibilities are assumed by Anibal Claudino, COO ... Adriana Rossl has joined TORLYS in the newly created role of Operations Manager, overseeing all customer service functions, including purchasing and inventory control, and claims processing. |
| U.S. MARKET INDICATORS |
| Gross domestic product was up by a 3.3% annual rate in the second quarter, revised upwards from a 2.8% previously reported by the Commerce Department, but still the slowest rate of GDP advance since the first quarter of 2003.Housing starts were up 9.4% from July to August for single family homes in the U.S., says the Census Bureau and Department of Housing and Urban Development. The level reached a seasonally adjusted annual rate of 1.184 million units in August, the biggest percentage increase since December 2000. Sales are up 10.8% year to date. The price of new homes was $208,900; the average sale price was $267,000.
August construction spending reached $1,015.3 billion at a seasonally adjusted annual rate, up 0.8% from July and up 10.1% from August 2003, the Commerce Department said. Non-residential construction was $456.4 billion, down 0.2% from July but up 5.2% from one year ago. Falling mortgage rates boosted private construction and private residential construction to record highs.
Consumer confidence, as measured by the Conference Board's Consumer Confidence Index, fell 1.9 points to 96.8, well below analysts' expectations of 99.5. It's been as high as 144.7 in May 2000, when the job market was strong, but has been volatile since the economy emerged from recession in November 2001. |
| CANADIAN MARKET INDICATORS |
| Gross domestic product climbed by only 0.1% in July, after posting a 0.4% gain in June. The goods producing sector has been the main source of growth over the past three months. GDP got a boost in July from the manufacturing sector, wholesale and retail trade sectors, and financial services sector. The oil patch, construction, and travel and tourism related services, held the reins on economic expansion. |
| OVERHEARD... |
| "I'm starting to develop feelings for him, and it's scaring me." — One of the 10 women who survived the latest cut on the TV reality show, "The Bachelor." (No really, the stuff I have to watch while writing up Hardlines each week...—Michael) |
| NOTED... |
| Our friends at Presidents Council will hold their Annual Retail Trends Summit in Chicago November 9-10. Speakers include Al Meyers, Vice-President of Retail Forward, and a retail executive round table. Store tours round out this 1 1/2 day event. for more info, call 847-480-7171, or click here. |
|
John Caulfield, Contributing Editor
vol. x, #40, October 4, 2004
Tim-BR Marts Ltd. is currently looking for a buyer and advertising coordinator.
Qualifications:
BLACK EAGLE CONSULTING 2000 INC.
President Richard Simms has 35 years experience in the hardware/housewares industry – both as a manufacturer and a consultant. Black Eagle Consulting specializes in strategic plan analysis, organizational structure review, executive coaching/assessment, career counselling, succession planning. CHHMA affiliate member and Canadian Association Family Enterprise trained facilitator. See website www.blackeagle.ca or call 905-842-3010/email rsimms@blackeagle.ca for more information.
**********************************************************************************
RECRUITING CAN SOMETIMES BE A HEADACHE.
Let Kris Weston and Associates alleviate your recruitment headaches. If you're looking to hire an "impact player" for your business, a General Manager, National Sales Manager, or Marketing Manager... someone who will have a significant impact on your top or bottom line, then contact Kris Weston. Please check out our website at www.kriswestonandassociates.com for a recent testimonial from a satisfied client in the home improvement industry.
**********************************************************************************
WHETHER OR NOT IT GETS PAINFUL IS UP TO YOU.
UCCnet services compliance is being strongly encouraged by retailers from Wal-Mart® to The Home Depot® because it makes supply chains more efficient. But implementation can be challenging. Sterling Commerce will guide you through every step. To find out more, click here for a free copy of, "Data Synchronization: From Compliance to Collaboration."
**********************************************************************************
RETAIL IS DETAIL. Let Noral Instore, a national service company, handle your service requirements in Canada. Noral serves some of America's leading manufacturers, managing their lines for Canada's top hardware retailers, big boxes and mass merchandisers.
Contact Dave Leslie at 905-702-9443, to find out how Noral can boost your sales in Canada. http://www.noralmarketing.com
**********************************************************************************
MARKETPLACE
