Building Materials Holding Corporation
Building Materials Holding Corporation
Sales: $1.09 billion (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: BMHC
NAIC: 444190 Other Building Material Dealers; 321911 Wood Window and Door Manufacturing
Building Materials Holding Corporation (BMHC) is a holding company that oversees the operation of its two principal subsidiaries, BMC West Corporation and BMC Framing Inc. With 131 properties in 12 western and southern states, BMHC operates in the building materials and services industry, focusing on satisfying the needs of contractors. The company’s retail outlets, operated through BMC West, feature lumberyards outfitted with millwork facilities to fabricate floor and roof trusses, pre-hung doors and windows, and other finished products. Through BMC Framing, the company provides framing services to national and regional homebuilders.
Upon its formation at the end of 1997, BMHC inherited strategic control over a chain of 55 stores, which generated $725 million in sales during the year. The stores and the revenue represented a decade of growth orchestrated by BMC West Corporation, the corporate entity BMHC was formed to serve. From the end of 1997 forward, BMHC would serve as central command for BMC West and other subsidiaries as they were formed. The establishment of BMHC as a holding company for BMC West represented an important step in a strategic plan developed by BMC West’s management to pursue a future of accelerated growth. With a holding company, BMC West’s management theorized, operational management could be centralized, assigning all responsibilities for administering and spurring growth to a single corporate entity. BMHC s duty was to govern the BMC West empire, a duty that encompassed a broad range of responsibilities including targeting and completing acquisitions, taking charge of strategic, financial, and capital planning activities, and handling investor relations. Any understanding of BMHC, however, required an understanding of BMC West, whose corporate birth preceded BMHC s formation by a decade.
BMC West, like BMHC, got a jumpstart of sorts in its corporate life. The company was created after a leveraged buyout (LBO) conducted by executives at the Idaho-based Boise Cascade lumber company. Under Boise Cascade’s control there once had been as many as 120 Building Materials Centers (hence the initials “BMC”), but under the bureaucratic management of the giant lumber company the chain suffered, dwindling to 20 stores by 1987 when four managers decided they could do better. Donald S. Hendrickson, Ellis C. Goebel, Steven H. Pearson, and Richard F. Blackwood became the new leaders of the beleaguered chain. Led by Hendrickson, the managers teamed with an investment firm, McCown De Leeuw & Co., to finance the LBO of Boise Cascade’s retail arm. George McCown, the general partner of McCown De Leeuw, and Hendrickson were able to secure $40 million in capital from Wells Fargo on a mere $1 million in equity, which proved enough to complete the spinoff of a new, independent company called BMC West Corporation in November 1987. McCown assumed the duties of board chairman, Hendrickson was appointed president and chief executive officer, Pearson became vice-president of human resources, and Blackwood was named vice-president of the company’s northern operations.
Although the creation of BMHC signaled a desire for accelerated growth, BMC West, on its own, pursued an aggressive growth plan during its first decade of existence. The company’s constant efforts to expand led one trade publication to suggest that “BMC” stood for “Buying More Companies,” but acquisitive rampancy did not mean Hendrickson and his team moved blindly forward with their purchasing campaign. The company’s acquisition strategy was sharply defined, designed to distinguish its retail concept from “big box” competitors such as The Home Depot.
BMC West in the 1990s
BMC West’s defining characteristic was its focus on serving professional builders and remodelers, rather than the casual “do-it-yourself” customers favored by The Home Depot. Unlike its big box competitors, the company eschewed acquiring properties in major metropolitan areas, preferring to build its presence in markets similar in size to its headquarters city of Boise, Idaho, home to less than 300,000 residents. Given its bias toward contractors, BMC West also preferred to acquire lumberyards with adjoining mill work operations capable of fabricating roof trusses, pre-hung doors and windows, and other finished-wood or “value-added” products. Lastly, acquisition candidates had to be making money. BMC West did not intend to be a turnaround specialist. “When we started out,” Hendrickson said in a July 1995 interview with Chilton’s Hardware Age, “we were so heavily leveraged we had to buy companies that immediately added to our earnings per share. We learned that’s a pretty good way to do it.”
As BMC pressed forward with its expansion program in the western United States, it exceeded its own growth projections. The company planned to add as much as $45 million of new business annually throughout much of the 1990s, but the ample number of acquisition candidates meeting its criteria spurred accelerated growth. More often than not, lumberyards wishing to sell approached BMC West rather than the other way around, further facilitating expansion. The company completed its initial public offering (IPO) of stock in August 1991. During its first five years of operation, the company acquired 16 properties and either shuttered or relocated another six units, giving it 32 stores by 1992 when the company was selected as Retailer of the Year by the trade publication Building Supply Home Centers.
During the mid-1990s BMC West’s rate of growth picked up pace. In 1994 the company acquired ten lumberyards and added $132 million in sales. By mid-1995 when the company was striving to double its annual revenues by 1998, BMC West had added more than $100 million in new business, bolstering its geographic presence to encompass nine western states plus Texas. By 1997, the year of BMHC’s formation, BMC West was operating 55 stores, which generated $725 million in sales, more than twice the amount collected five years earlier.
By the time Hendrickson decided it would be in the company’s best interest to form a holding company, the format of BMC West’s stores had evolved, underscoring the differences separating BMC West and big box competitors. During the early 1990s the company derived 6 percent of its sales from finished products. As the company entered the late 1990s, it derived approximately 35 percent of its sales from mill work, having greatly expanded its offering of pre-assembled roof and floor trusses, pre-framed walls, and pre-hung doors and windows. The increasing emphasis on selling value-added products was partly responsible for the company’s financial growth, particularly its profitability. Expansion through acquisitions added revenue in lumps, but selling more value-added products delivered meaningful growth as well, enabling the company to increase same-store sales by selling higher-price, higher-profit margin products. As value-added product sales increased, commodity lumber sales shrank, accounting for roughly 40 percent of sales during the late 1990s, half the percentage recorded earlier in the decade.
Birth of BMHC and Beyond: 1997-2000s
The announcement that BMC West would separate its strategic, operational, and financial activities into a holding company occurred in February 1997. In a March 1997 interview with Home Improvement Market, Goebel explained: “We feel that with forming the holding company, we’ll be able to do the financial things there, we’ll be able to work with Wall Street there, and we’ll be able to do the acquisition[s] there. Then we can keep the operating management close to our customers and close to the employees.” Concurrent with the creation of BMHC, headquarters were moved from Boise to San Francisco, where a small office housing no more than a handful of executives was opened. Hendrickson stayed on as president and chief executive officer of BMC West, which led to the appointment of Robert E. Mellor as BMHC’s president and chief executive officer. As part of the restructuring that gave birth to BMHC, BMC West was divided into three major operating divisions separated by their geographic differences.
By the time BMHC was formed, the company was attempting to reach $1.2 billion in sales by 2000, double the total recorded in 1995. The time spent creating BMHC did not halt the company’s pursuit of its financial goal. In 1997 the company completed five acquisitions, the fifth and largest of which was the $63-million-in-sales Lone Star Plywood & Door Co. purchased in November. The acquisition of Lone Star, a Texas-based operator of millwork and pre-hung door manufacturing facilities in Houston, Dallas, Portland, and Seattle, led to the formation of a fourth BMC West division. Bill Smith, Lone Star’s president, was selected to head BMC West’s south central division, which included 13 BMC West building centers located throughout Texas.
With more than $1 billion in sales, BMHC is an industry leader in the residential construction services and building materials industry. Keys to the company’s success include concentration on housing markets where growth outpaces national averages, and a strong management structure that keeps BMHC close to local market trends and to the service needs of its customers.
As BMHC pressed ahead in its inaugural year, steady expansion pushed the company toward its ambitious revenue goal. In June 1998 BMC West signed an agreement to acquire a 19-acre tract of land in Portland. On the land, the company intended to build one of its full-service facilities, featuring a lumberyard, a door facility, and a truss plant. The facility was expected to be fully operational by mid-1999. The company also acquired Rigid Truss Inc., an operator of a truss facility and a wall panel plant in Salem, Oregon, with $6 million in sales. In August 1998 BMHC announced it had acquired two companies, Castleberry Mill & Lumber Inc. and Heart Truss Co. Based in Dallas, Castleberry generated $53 million in sales from its custom pre-hung door shop and a wood and vinyl window distributorship. Heart Truss, based in Spokane, Washington, operated a truss manufacturing plant generating $51 million in sales in 1997.
In the final year of the decade, BMHC slipped past $1 billion in sales, registering $1,007 billion in revenue and $19.6 million in net income. The financial figures recorded at the end of 1999 were boosted, in part, by the acquisitions completed during the year. BMHC purchased four value-added manufacturing facilities during 1999, including the October purchase of Royal Door, an Oregon-based millwork operation with $25 million in annual sales. The most important development in 1999 occurred when BMHC entered the framing business, leading to the formation of a new subsidiary, BMC Framing Inc. BMHC entered the framing business by acquiring 49 percent of Knipp Brothers Industries, LLC, a framing contractor with operations in Arizona, Nevada, and California. The deal was expected to greatly enhance the portion of sales derived from construction services and manufactured components, one of BMHC s primary goals as it entered the 21st century.
As BMHC progressed toward its fifth anniversary, the company continued to add to its manufacturing and installation capabilities, further distancing itself from the commodity lumber business that had once defined BMC West. When BMHC acquired its stake in Knipp Brothers, it had planned to acquire the remainder of the company in 2004, but instead completed the acquisition three years ahead of schedule. In a move to better align its operations with production homebuilders, BMHC acquired the remaining 51 percent interest in Knipp Brothers, bolstering the stature of BMC Framing and increasing its commitment to the installation side of the residential construction business. The impact on the company’s business was measurable. Value-added products and services, which had once accounted for only 6 percent of sales, accounted for 54 percent of the company’s sales in the fourth quarter of 2001.
In 2001, BMHC generated $1.09 billion in revenue, coming enticingly close to its goal of $1.2 billion in revenue by 2002. During 2002 Mellor increased his influence over the company by replacing McCown as chairman, giving Mellor considerable control as president, chief executive officer, and chairman. Shortly after Mellor’s ascension to BMHC s chairmanship, the company sealed another deal to increase its framing business. In July, the company announced an agreement to acquire 51 percent of Sanburn Construction, a provider of framing services for more than 15 leading national and regional production home-builders in the greater Sacramento market and the San Francisco Bay area. The investment led to the creation of KBI Norcal, which was organized as a business unit within BMC Framing. On the heels of this development, BMHC began looking for other investments and acquisitions, endeavoring to march past $1.2 billion in sales. As the company prepared for the future, its maturation from a regional to a national company appeared to be only a matter of time, provided its prudent course of expansion did not stray from past success.
BMC West Corporation; BMC Framing Inc.; KBI Norcal (51%).
The Home Depot, Inc.; Lowe’s Companies, Inc.; Pacific Coast Building Products Incorporated.
- BMC West is spun off from Boise Cascade.
- BMC West completes its initial public offering of stock.
- BMHC is formed as a holding company for BMC West.
- After acquiring a 49 percent stake in Knipp Brothers Industries, BMC Framing Inc. is formed.
- The remaining 51 percent interest in Knipp Brothers Industries is acquired.
- KBI Norcal, a framing services subsidiary, is formed.
Binole, Gina, “Building Material Firm Set to Expand in Portland,” Business Journal-Portland, June 12, 1998, p. 14.
“BMC Announces Stock Offering, Record Revenues,” Building Supply Home Centers, November 1992, p. 24.
“BMC West Buys Its Way to the Top,” Building Supply Home Centers, February 1994, p. 29.
“BMC West Buys Plywood and Door Company,” Do-lt-Your s elf Retailing, January 1998, p. 82.
“BMHC Buys Two Value-Added Companies,” Do-lt-Yourself Retailing, August 1998, p. 33.
“BMHC Expands Residential Framing Operations,” Do-lt-Yourself Retailing, August 2002, p. 21.
“BMHC Forms New Business Unit,” Home Channel News News Fax, July 1, 2002, p. 1.
“Building Material Firm Set to Expand in Portland,” Business Journal-Portland, June 12, 1998, p. 14.
Casson, Clarence, “BMC West: Power to Its People,” Building Supply Home Centers, June 1992, p. 76.
Impellizzeri, Laura, “Boise Cascade Offshoot Nails 4th Buy-Up for Year,” San Francisco Business Times, October 22, 1999, p. 17.
“Mellor Elected Chairman of BMHC,” Home Channel News NewsFax, May 6, 2002, p. 2.
Shuster, Laurie, “BMC West on a Buying Spree,” Chilton’s Hardware Age,