490 final draft - presentation pdf

Beacon Roofing Supply Inc. Group One | Acquisition Team

Molly Cooney, Chelsea Krogwold, Benjamin Lindberg, Justin Pittman, Tyler Walimaa

Strategic Direction

Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions

3

Customer Service

Geographic Expansion

Product Mix Diversification

Acquisition Strategy

Selection Criteria Customer Focus

Geographic

Product mix diversification

Culture

Synergy opportunity

Vertical acquisition opportunity

Financial risk

Seasonality

Turnaround

Criteria Custo

mer

Focu

s

Geogra

phic

Diversi

ficati

on

Vertica

l

Culture

Risk

Seaso

nality

Synergy

Turnaro

und

Total

s

Weight 10 9 8 5 9 7 6 8 5Real Goods Solar 70 45 40 50 45 42 30 40 35 397Quanex 80 54 48 60 54 49 48 48 40 481BlueLinx 90 90 80 50 72 63 42 64 45 596


4

Pros • Customer Focus

Cons • Lack geographic

locations • Minimal product

diversification • Low synergy

opportunity

Real Goods Solar

Pros • Geographic

locations • Culture • Synergy

opportunity

Cons • Turnaround • Minimal product

diversification • Seasonality

Quanex Pros • Customer focus • Geographic

locations • Culture • Synergy • Product

diversification

Cons • Unstable financial

situation

BlueLinx

Acquisition Candidates Strategic Direction – Acquisition Options – Rationale – Valuation – Integration – Conclusion - Questions

5

Purchase Price: $250 million

Marketing – SWOT Analysis Beacon SWOT Analysis BlueLinx SWOT Analysis

Strengths Weaknesses • Financial flexibility • Customer service focus • Customer relationships

• Highly leveraged capital structure

Weaknesses Strengths • Cyclical revenue stream • Limited product mix • No Mexico, Wisconsin, Manhattan locations

• Interior products reduce cyclical sales • Diverse product mix • Mexico, Wisconsin, Manhattan locations • Customer service focus

Opportunities Opportunities • Diversification of product mix • Geographic expansion

• Geographic expansion

Threats Threats • Competition • Economic downturn

• Insolvency • Competition • Economic downturn


6

Marketing – Target Market


Beacon Contractors Commercial Residential

Exterior Builders

Re-roofing contractors

BlueLinx Contractors Commercial Residential

Exterior Builders

Interior Builders

Retail home project consumers

Industrial and manufactured housing

7

Management – Properties


• 55 locations • 52

warehouses • 3 sales

centers • HQ -

Atlanta, GA

• 265 locations • HQ -

Herndon, VA

• 308 locations • HQ –

Herndon, VA

BlueLinx Locations Beacon Locations Combined Locations

Consolidation • BlueLinx HQ • 9 BlueLinx

warehouses • 2 Beacon

warehouses

8

Beacon Headquarters

Beacon Locations

BlueLinx Headquarters

BlueLinx Locations



Key New Markets

Recommended Closures


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


10

Management – Suppliers


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

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


12

Human Resources – Employees

• 1,700 employees

• -578 union BlueLinx

• 3,179 employees

• -35 union Beacon

• 4,503 employees

• -613 union Combined

13


Reductions: 376 employees

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

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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

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/WagesSales 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

Financial Analysis – Income Statement

4th and 5th ranked market share in 2014


16



Industry leader in 2017

1 Beacon2 ABC3 ProBuild4 Allied5 84 Lumber6 Builders7 HD Supply8 L&W Supply9 Roofing Supply

Building Supply Market Share

Rankings$5.3 Billion

17

Initial decrease in gross profit



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

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



19

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



20

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


21



22

Low leverage (40% debt) Able to finance growth with debt



23

High leverage (107% debt) Financially unstable Limited growth options



24

Medium leverage (57% debt) More risky than Beacon Less risky than BlueLinx Temporarily limited financial

flexibility



25

Initially, high LT debt balances (June 1st, 2015): $290 million Beacon LT debt $438 million BlueLinx LT debt $140 million new debt



Aggressive debt reduction

New opportunities for major growth by

2018-2019 $50 million LT debt remaining

26

Higher operating cash flows resulting from Consolidation of administrative expenses Economies of scale

The higher cash flows following acquisition are critical for Debt reduction Financial flexibility from enhanced

liquidity

Financial Analysis – Cash Flows


2015 2016 2017 2018 2019 Beacon 84,537$ 91,449$ 98,997$ 107,242$ 116,353$ BlueLinx (1,896) 157 742 99 (837) Combined 46,758 197,282 217,604 310,041 306,294

Operating Cash Flows

*numbers in thousands

27

Beacon investing cash used on fixed assets, organic growth and minor acquisitions



2015 2016 2017 2018 2019 Beacon (89,191)$ (93,996)$ (99,431)$ (105,573)$ (112,513)$ BlueLinx 12,881 10,735 7,618 2,975 (2,659) Combined (200,204) (53,488) (60,504) (68,429) (77,382)

Investing Cash Flows


BlueLinx investing cash provided by sale of property, plant and equipment to maintain solvency

Beacon with acquisition, Acquisition of BlueLinx in 2015 Reduced investing expenditure 2016-2019

to concentrate cash on debt reduction

28

Beacon currently makes little use of financing cash flows Has financing options for growth

Combined, 2015, increase in debt due to acquisition 2016-2019, aggressive debt reduction



2015 2016 2017 2018 2019 Beacon 1,341$ 3,590$ (6,444)$ (9,218)$ (6,123)$ BlueLinx (10,975) 10,938 (8,360) (2,624) 4,070 Combined 104,210 (138,898) (135,779) (191,678) (161,473)

Financing Cash Flows


29

Reduced liquidity 2015-2018 Still above 1.00

Sales growth drives increase in short- term assets to counterbalance short-term liabilities

Enhanced liquidity by 2019

Financial Analysis – Key Ratios


30

Increased debt burden decrease interest coverage ratio to 2.64 Will stay above minimum (set by

management) of 1.5

As sales increase and debt decreases, interest coverage increases

By 2019, interest coverage ratio will be 280 times.



31

2015: ROE, ROA, ROIC lower with acquisition

2016-2019: ROE, ROA, ROIC higher with acquisition



2015 2016 2017 2018 2019 Beacon 8.43% 8.26% 8.11% 7.98% 7.87%BlueLinx - - - - -Combined 5.63% 13.84% 13.11% 15.86% 16.99%

Return on Equity

Beacon 5.03% 5.06% 5.02% 4.94% 4.88%BlueLinx -0.19% 0.01% 0.04% -0.20% -0.60%Combined 2.43% 6.80% 7.45% 10.52% 12.90%

Return on Assets

Beacon 10.46% 10.47% 10.23% 9.79% 9.46%BlueLinx -0.82% 0.03% 0.26% -1.66% -6.32%Combined 5.19% 16.38% 18.08% 26.55% 31.90%

Return on Capital

32

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


($ 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 0.2Additional 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

$250 million purchase price Payback period: 3.08 years

Financial Analysis – Return on Investment


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

Valuation of BlueLinx

TEV/EBITDA

• $164,373,000 • 7.7x

EBITDA Multiple

• $124,700,000 • 5.5x

EV/Sales

• $494,800,000 • 0.44x

DCF

• $92,700,000


35

Market Capitalization: $102.8 million

Purchase Price

Initial offer: $150,000,000 to $250,000,000 37% - 129% premium

Drop-dead price: $350,000,000 221% premium


36

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


37

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


*Refer to pg. 24 in BlueLinx Acquisition Information Packet for full Gantt Chart

Management – Property


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

Management – PPE


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

Management – IT System


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

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


42

Human Resources – Culture

Culture Integration Integrity

Teamwork

Continuous Improvement Passion

Teamwork

Integrity


43

Human Resources – Benefits

BlueLinx • Medical • Dental • Vision • Vacation • Paid holidays • Disability insurance • 401(k) • Life insurance • FSAs

Beacon • Medical • Dental • Vision • Vacation • Paid holidays • Disability insurance • 401(k) • Life insurance • Paid sick days


44

Marketing – Rebranding Strategy

Ultimately, BlueLinx rebranded as “BlueLinx a Division of Beacon”

BlueLinx a Division of Beacon: Interior products Structural Doors and trim Outdoor living


45

Marketing – Advertising Budget


46

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


Ongoing

47

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


48

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


49

Communication Plan – Employees


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


June 1st

50

Communication Plan – Employees


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


June 1st

51

Communication Plan – General Public


Press release Released on Beacon website Available on June 1st, 2:00 p.m. EST

General Public

Press Release

June 1st

52

Communication Plan – Suppliers


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

Communication Plan – Customers


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

The acquisition of BlueLinx will provide Beacon with opportunity for net positive synergies of $137.8 million

Conclusion


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 0.2Additional 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

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


56

Sales Net Income EBITDANo 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

Conclusion

Strategic Fit • Customer Focus • Product mix

diversification • Geographical

expansion

Competitive Differentiation • Enhanced

competitive position

• Sustainable competitive advantage

• Increased market Share

Enhanced Financial Performance • Increased

profitability • Enhanced

financial flexibility

Increased Shareholder Value


Strategy

Results

BlueLinx

57

Questions?

• Management – Chelsea Krogwold

• Human Resources – Molly Cooney

• Marketing – Justin Pittman, Tyler Walimaa

• Finance and Accounting – Ben Lindberg


58

490 final draft - presentation pdf

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