Beacon Roofing Supply Inc. (NASDAQ:) has completed the previously announced acquisition of CRH (LON:) plc's (NYSE:) U.S distribution business, Allied Building Products Corp. for $2.6 billion. The buyout will not only expand product offerings, but also increase geographical reach in both existing and new markets while ensuring significant cost synergies.
Dublin, Ireland-based CRH is the largest building materials company in North America and the second largest worldwide. Its subsidiary, Allied Building Products is one of the country’s largest exterior and interior building products distributors. It distributes products which include exterior products, such as roofing, siding, windows and doors, and interior products, such as wallboard and suspended ceiling systems, across 208 locations in 31 states.
Ensures Market Leading Position
The acquisition will catapult Beacon Roofing to one of the largest public wholesale building materials distributors in the United States and Canada. It will have 589 branches in six provinces across Canada and in all 50 states, expanding foothold in other key markets including Texas, Florida, Colorado and California. Through the Allied acquisition, Beacon Roofing would mark its foray in local markets in the New York, New Jersey and Upper Midwest.
Beacon Roofing Supply, Inc. Price
Beacon Roofing Supply, Inc. Price | Beacon Roofing Supply, Inc. Quote
Anticipated Financial Benefits
With projected revenues of roughly $7 billion from the combined company, it will be an increase of 60% in the company's annual revenues from current levels and add about 50-60 cents incremental to earnings per share in the first year. However, this does not include incremental transaction-related amortization costs of $70-$80 million and acquisition costs of $65-$75 million in the first year after the combination. The combined company is anticipated to realize $110 million in run-rate synergies within two years of the closure of the deal.
Expansion of Product Portfolio
In addition to growing roofing supplies business, Allied Building will add a wallboard and acoustical ceiling tile wholesale business to Beacon Roofing, making it the fourth largest distributor of such products in the United States, with more than $1 billion of revenues in the interior market category. The company will gain foothold in the robust, growing and still-consolidating interior products market.
The acquisition will also help boost growth in other key product categories, including siding, windows, doors, decking, trim, waterproofing, insulation and solar. Through the combination, Beacon Roofing will be able to capitalize on Allied’s various market advantages, including established private-label business and strong e-commerce platform, to deliver organic growth strategies.
Beacon Roofing funded the acquisition by taking up debt. Further, given the size of the buyout, integration risks also remain.
The company continues to balance year-to-year branch opening strategy with potential acquisitions. In fiscal 2017, it closed five acquisitions with a cumulative sales run rate of more than $130 million of annual sales with 23 added branches. Beacon Roofing outperformed the industry with respect to price performance over the past year. The stock gained 40.8%, while the industry recorded growth of 35.6%.
Also, Beacon Roofing is witnessing strong sales growth within the three product lines and across almost all geographies. The momentum is expected to continue in fiscal 2018. Beacon Roofing is also anticipated to benefit from the rebuilding activity triggered by the two back-to-back hurricanes. The company is also striving to improve margins by managing costs.
Beacon Roofing currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Stocks to Consider
Some other top-ranked stocks worth considering in the same sector include Conn's, Inc. (NASDAQ:) and Famous Dave's of America, Inc. (NASDAQ:) . Both the stocks carry the same Zacks Rank as Beacon Roofing.
Conn's has a long-term estimated earnings growth of 23%. Its shares have gained 30% in the past year.
Famous Dave's of America has expected long-term earnings growth of 20.0%. Its shares have rallied 91% in the past year.
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