LBM Leaders Give Insight into How to View Consolidations

Here at LBM Journal, it seems like every week we hear about a new acquisition, whether it’s a larger company buying a smaller location to grow its presence, or a local company buying another without a succession plan. Regardless of backstory, consolidation is becoming more and more common in the LBM industry, leading some to wonder what the future looks like for independent companies.

We’re an independent LBM dealer in our third generation of family ownership. Our business is strong and growing, but with so many other companies like ours being acquired by larger companies, younger members of our family are questioning how much longer companies like ours will be around. For younger family members thinking about their future, what should I tell them about the future of independent building material dealers like us? Any insights will be appreciated.

Responses from lumberyards, full-line building material dealers, and specialty dealers/distributors:

“My younger brother and I recently went through this as now third generation owners. Our father passed away unexpectedly and we were at the crossroads of selling or buckling down and continuing to operate. There was no shortage of interested buyers and the dollar signs were enticing, however the legacy our grandfather and father built meant more to us. Maybe that’s just pride but we felt we owed it to them to continue operating independently. While it’s been a change and challenge, it has been extremely rewarding. I would tell the younger family members to think about the legacy, the employees (who in my experience are typically very seasoned employees who feel like extended family) and to not shy away from a challenge that can be extremely rewarding both personally and financially. On a final note, I would say there is something to be said about being your own boss.”

“There is always a future for great independents and strong buying groups like LMC that make it possible. Customers recognize when conglomerates become too corporate, and they long for the attention and personal service that only independents can provide.”

“Just go with the flow of the supply and demand.”

“Do what you do better than the private equity yards. Join a co-op of independent yards to increase your buying power to that of the PE owned yards.”

“It’s your choice: you either work for yourself or you’ll end up working for others.”

“I think the younger members of your family have to ask themselves the question, what do they see themselves doing for the rest of their careers? I think there is a place in this industry for independents as long as they are properly serving their customers.”

“Look into joint ventures with your peers. Join forces.”

“For us, specializing in custom or quality materials has been our bread and butter and helps our business grow and continue to compete with the larger dealers/big box stores. We offer brands like Marvin Windows or TruStile Doors that aren’t available everywhere. Having brand exclusivity can help bring customers in, who wouldn’t typically shop at a local lumberyard. So, finding your niche for the market you’re in will definitely help.”

“I’d recommend working each day to get better personally and as an organization. If you get acquired, ideally, the new company can see your value and you’ll be retained. However, if they release you, the work you did should allow you to be attractive to another organization. One more thought: control what you can control.”

“Our value-add is through excellent customer service by experienced team members as well as carrying the highest quality building materials.”

“You are ‘strong and growing.’ That should be your focus … don’t get distracted by ‘other companies like ours being acquired.’ The younger family members need to be developed to step up to the challenge like the generations before them did to build a strong and growing company. It wasn’t without challenges then, and it isn’t now. They need to bring their ‘new generation skills’ to the table and take pride in working to advance the legacy for the next couple of generations.”

“Grow your business and hope to be acquired for generational wealth.”

“The future is strong for the independent dealer. Local ownership allows for local decisions in real time, real relationships with customers, and better futures for employees. If I were a young person today, I would absolutely jump into the business with both feet and bet on myself instead of just becoming a cog in a massive corporate machine. Opportunity is what one makes of it.”

“I think there will always be a place for independent lumberyards, as long as they provide quality materials and service, and are in a realm of competitiveness, there will be room to prosper. People like choices and bigger is not always better.”

“Relationships and service are the key. Large corporate companies can’t offer this. Focus on what you do well and the market segment that aligns with your business philosophy.”

“They have to know and understand their passion. If they are truly committed to the business, don’t get distracted by the acquisition stories that surround all of us. Remember that many of the larger companies exercising this option are simply trying to keep shareholders engaged. There is still plenty of room for independents that form tight bonds with key supplier partners and understand their vision for serving their customers. If their heart is in it, they need to continue the legacy.”

“I believe the long-term market only looks better for strong independent operations as the consolidation continues.”

“Most customers love working with independent suppliers instead of the private equity, large corporations in our market. We also have seen that same interest in regard to potential employees that are sick of the larger corporations as well. I think it’s a super exciting time to be an independent dealer for those reasons.”

“Independent dealers are needed. If you love your family business and are willing to invest in resources to compete, you can compete. Your independence is what sets you apart from the big guys who do not have the relationships and whose biggest relationship is with the bottom line.”

“What can be said about this; every independent in this country is dealing with it. Maybe, in rural America, it will survive, but we don’t see it in the big cities. Wall Street types will drive independents to early retirement and it will be the end of generational yards.”

“My grandfather started the lumberyard in 1940 and after World War II was over, four other family lumberyards and a hardware store opened on our street. When I started in 1980, large home improvement stores opened up only two miles away, which only slightly affected the way we did business, but everyone stayed in business. Those two giants did not survive the test of time and they faded away in the 1990s. Then in 1994, Home Depot and Lowe’s opened 2 miles away. They had a large impact—I am the only survivor of the small family businesses. I had to navigate through several business ideas and found a specialty niche which made us a thriving business. So find a niche or department that the big guys do poorly and overcharge in, and outperform them with higher quality.”

“The future is very bright for independents focused on basic building materials sold with a focus on customer service and relationships. This can happen only as family members live out those values and support their staff.”

“Your future is what you make it. If you rest on your ancestors’ laurels, your future will be dim. Believing that your company’s legacy makes you safe only makes you that much more vulnerable to the powers of the large national chains. You need to be cutting edge, offer better services, and build the relationships that your customers can and will rely on. There is no such thing as ‘customer loyalty’ anymore—they will jump ship for 1% or a t-shirt. Put in the work and be as flexible as you are able.”

“The same skills you learn to run a family-owned business will play out in the corporate world. The biggest adjustment is not totally focusing on long-term growth and sustainability like you do as a family-business generational leader. Instead, in the corporate world, your focus is to operate to maximize results on a monthly, quarterly, and annual basis. It is corporate leadership that focuses on the long-term.”

“I think like many previous independently-owned dominated industries—jewelry, manufacturing, clothing—the lifespan of independent building material dealers is closer to the end than the beginning. If the right deal comes along, take it. In 20 years, those that are left will be regarded more as curiosities than prime movers. Can you tell I’m also closer to the end than the beginning?”

Responses from wholesale distributors, manufacturers, and service providers:

“Many times, the independent dealers are more passionate about their business, are leaner, and will go to the ‘mats’ for their customers. This gives them a leg up on the bureaucracy of big corporations. The independent thinks outside the box and often knows the market and their customers better than the big guys/gals!”

“Determine your vision and leadership of your company and stay focused on partnerships with vendors and builders. Look to add manufacturing and strong vendors that can support your vision.”

“Find success stories from around the country to visit with your younger family members. Most independent LBM dealers are supportive and welcoming to others in similar situations.”

“Younger members will probably have an expedient rise for more responsibilities and opportunities from a larger acquisition company. Not unusual for existing older management to retire during an acquisition, allowing for younger family members to have additional opportunities for advancement by the acquisition company.”

“You’re much safer in a family-owned and operated company than you are selling to a public. Every promise the merger and acquisition team tells you during your negotiations is BS. They will kill your company culture, change your name, and run off your loyal employees. The community you serve will be negatively impacted, and your little league teams will go without a sponsor. The acquisition engines that call themselves LBM dealers are easy to beat, you just have to know where to hit them. Don’t sell. No number is worth your family legacy, your employees, and your community.”

“There is significant consolidation in the independent area. It might be a good time to evaluate selling.”

“We are also in our third-generation and if the opportunity should arise to sell, I would suggest it only if the third-generation owners could sustain their present lifestyle on the return for the next 40 years since they are in their early 30s. If not, there will always be a need for independent dealers such as us. It’s a big decision, just don’t jump until you are sure it will be a good fit not just for you but also your employees.”

“The future of independents is strong. Independents excel at customer service in ways that the large chains never will. If you want to cash out, sell. But if you want to continue the legacy of your family, you will find it very rewarding. You may need to take a look at the buying groups to understand how they can help you compete, both in product purchasing and in all facets of your business.”

“You are here to support the local community, and it is an image for your area business.”

“Being small and independent gives you an edge against larger companies. You should be able to react faster both in good and bad economies. You should have a better feel for your employees and customers since you are closer to them.”

“There will be opportunities in this industry for multiple generations to come. Stay the course. This is a very lucrative and rewarding, yet humbling business.”

Which of the following best describes your company’s status?

“My younger brother and I are third generation owners who recently went through the succession process after the untimely passing of my father. We were tempted to sell, however the legacy our grandfather and father built over the last 40 years meant more than the dollar signs, so we decided to continue to run the company.”

“We’re a fourth-generation family business with a legacy to uphold.”

“We’re family owned and operated, and we’ve acquired five other family-owned operations that were looking to get out of business.”

“We’re looking to expand our footprint in the next few years.”

“The consolidation we’ve seen in the past 15 years has been the single worst thing to ever happen to our industry. Builders FirstSource, US LBM and Kodiak are nothing but acquisition engines. There has been billions spent in mergers and acquisitions and we have no new home building capacity to show for it, no new innovation, and a poisonous corporate culture that pushes out the mavericks and gun slingers that once made the LBM, components, and construction industry a great sector to work in.”

“We are in the process of acquiring an independent lumberyard/building materials company.”

“We’re slowly growing as a small family business, the fourth generation has just joined the business, and another young entrepreneur just started in outside sales. So I am the experience that keeps their activities coordinated and running the company as the third generation, developing a plan for their smooth transition into leadership.”

“We were hardware store owners and recently acquired our first lumberyard and plan to continue to acquire more.”

“We’ve been family owned and operated for over 120 years.”

“We just completed a generational acquisition to keep business family owned by operating members.”

“We’re going through internal succession planning.”