The Game is Changing

[Miles]

https://www.pehub.com/2016/01/monomoy-c ... ties-buys/

Monomoy Capital closes Construction Resources, Builder Specialities buys

January 4, 2016 By Luisa Beltran
Monomoy Capital Partners said Monday that it has closed its buy of Construction Resources Inc. and Builder Specialties Inc. Financial terms weren’t announced. Bank of America and LBC Credit Partners provided financing for the transaction. Baker & McKenzie LLP was Monomoy’s legal counsel while Grant Thornton LLP completed financial and accounting diligence. The deal was announced in December.

PRESS RELEASE

NEW YORK–(BUSINESS WIRE)–Monomoy Capital Partners, a private equity firm focused on deep value investing and operational improvement in the lower middle market, announced today that it has acquired Construction Resources, Inc. and Builder Specialties, Inc. from their owner-operators. Terms of the transaction were not disclosed.
The combination of the two businesses under the Construction Resources name creates a leading specialty building products distributor for home builders in the Southeast. The company fabricates, distributes and installs countertops, appliances, hearth products, garage doors, glass and mirror products, flooring products, lighting products and cabinets. Construction Resources is now positioned as the largest ‘one-stop shop’ for specialty building products in the Southeastern US. The Company employs over 700 associates in 30 distribution centers, design centers and showrooms located throughout the Southeast.
Mitch Hires and David Haun, the owner-operators of the two underlying businesses, are investing in the combined company and will serve as the Chief Executive Officer and President of Construction Resources going forward.
“We are excited to welcome Construction Resources to the Monomoy portfolio,” said Justin Hillenbrand, a partner and Co-Executive Officer at Monomoy. “Under the leadership of Mitch Hires and David Haun, the companies we acquired today are leading specialty suppliers to home builders with an impressive customer list and an unmatched reputation for quality and service. We look forward to working with the Construction Resources management team to integrate the two businesses and to improve customer service, product quality and geographical reach.”
“We see a significant opportunity to expand and grow our business as the housing market continues to improve, particularly in greater Atlanta and surrounding regions,” said Mitch Hires, the Chief Executive Officer of the new Company. “Monomoy brings Construction Resources a unique combination of financial and operational capabilities, and we are convinced that the Monomoy team is the right partner to help take Construction Resources to the next level of excellence for our customers, suppliers and employees.”
Monomoy acquired Construction Resources through its second fund vehicle, Monomoy Capital Partners II, L.P. Garry Jaunal and Edward West from Baker & McKenzie, LLP provided Monomoy with legal counsel in the transaction and Mike Sullivan from Grant Thornton LLP completed financial and accounting diligence. Bank of America and LBC Credit Partners provided financing for the transaction.
About Monomoy Capital Partners
Monomoy Capital Partners is a private equity firm with over $1 billion in committed capital that makes controlling investments in lower middle market businesses in the manufacturing, distribution, consumer products and foodservice sectors. Over the past ten years, Monomoy has closed over 40 middle market acquisitions, and its companies have produced over $2.5 billion in combined sales and employed more than 5,000 associates across four continents. Monomoy implements customized business improvement programs at its investments that reduce operating expenses, increase profitability and encourage growth. To learn more about Monomoy and its portfolio, please visit the firm’s website at www.mcpfunds.com.
Since forming the firm in 2005, Monomoy has grown its staff from three founders to a firm of 25 world-class investment and operating professionals. A 2015 study by Preqin, the leading source of data on the alternative assets industry, named Monomoy Capital Partners II, L.P. the best performing distressed private equity fund raised between 2006 and 2012 and the second best performing distressed private equity fund raised since 1990. Access the 2015 Preqin Alternative Assets Performance Monitor at www.preqin.com.
About Construction Resources
Construction Resources is the combination of two owner-operated distributors to home builders in the Southeast region of the United States. Builder Specialties, Inc. (“BSI”) is a distributor and installer of appliances, garage doors, hearth products and lighting products. BSI operates 11 distribution centers, design centers and showrooms in greater Atlanta, the Florida panhandle and South Florida. Construction Resources, Inc. (“CR”) is a fabricator, distributor and installer of countertops, glass products, flooring products and cabinets. CR operates 19 distribution centers, design centers and showrooms in Georgia, Florida, South Carolina and Alabama.
Headquartered in Decatur, Georgia, the combined business provides a full portfolio of home products and installation services to national home builders, regional home builders and general contractors throughout the Southeast.

RELATED STORIES

[DavidL]

Its a brave new world out there. Now get back to work!

[Darryl Miller]

I heard about this earlier today. I hope all goes well on your end David.

[Dan R.]

What really changed?
No one new in the market.
No more competition, no less competition.

Seems more like a Kravitz post.

[graniteman]

It sounds like the competition just got a deeper pocket?

[Dan R.]

Stronger together
Smarter together


Sound familiar?

These dudes already had deep pockets. Now they have a partner with same.

[Miles]

What really changed?
No one new in the market.
No more competition, no less competition.

Seems more like a Kravitz post.

Someone with a billion dollars just bought a 50 million a year company and combined it with another 50 million a year company with about 100 locations between them. They can offer everything needed to build a home, including countertops, and you don't see what has changed?


And you're the SFA long term visionary?

[Dan R.]

Miles wrote:
Someone with a billion dollars just bought a 50 million a year company and combined it with another 50 million a year company with about 100 locations between them. They can offer everything needed to build a home, including countertops, and you don't see what has changed?

Dear Miles,
You are correct, there are more outlets. 19 + 11 = 30, not 100. They offer specialty products. I did not see anything about lumber, roofing and general products. The purchaser may own these types of services, but it was not revealed in the article.

Capacity did not change. There is certainly the possibility for more investment. I would question how significant $1B is over $50M when is comes to investing in this industry. IMO, it is more about management, than size. Mr Hires has it figured out, at least to $50M, kudos to him.

Other companies have made huge investments in this industry, with less than stellar results. One needs to look only as far as the quartz market, for one example. This is more formidable, as Mr Hires has a winning formula of managing (and growth) in this industry. Being a local company, with a hand on the pulse of your market, I understand your concern. Responding to a dominant player is stressful and sometimes expensive. Very Home Depot-ish, I would imagine.

As far as my role on the Visionary Committee; I am not THE "visionary", nor do I possess any Nostradamus like future prectability powers. I am, simply the moderator and by no means the end all design maker. I am one member of the board of directors. The function of the committee is to present ideas to the board for consideration, not to determine policy. It is advisory only. Recently a few members volunteered for this board and we have a few dialogues going.

Sorry for the harshness of my original post, I did not consider your point of view.
Thanks for sharing. More info is always better than less info.

[Dan R.]

Oh yeah,
CONGRATS Mitch!
It awesome to see someone in our industry cashing in (or out).

[Matt Kraft]

Oh yeah,
CONGRATS Mitch!
It awesome to see someone in our industry cashing in (or out).

That was my first thought, I hope our business is attractive to someone someday as to warrant a large check being written. It's been 16 years since I've been to Atlanta Marble, back when it was a lowly cultured marble shop and some redneck was doing a demo with a 5 gallon pail of polyester resin and a jiffy mixer. Congrats to all of them.

As was posted here before, Pulte Group (deep pockets, maybe not $1B) bought one of our competitors (and vendors) a few years ago. They were not immediately better for it, the new management made changes that hurt the business initially. They have recovered from it and will succeed I'm sure, but its no drop kick guarantee of success to have big money behind you.

[Miles]

How did things turn out for Pulte?

Whether or not they make money initially or not is not the point though. What's been missing from our industry is big money. There are very few companies in our industry backed by big money. I'm not talking about a 50 million a year company. I'm talking about the kind of money to take it to the next level. The kind of money that can lose money to kill competition. Or can buy competition. Or can build their own factory. Or creat their own software.

Every other industry in the history of the world has consolidated (for the most part). It takes people with money to make it happen.

[Dan R.]

It takes more than money to make it happen and be successful. It takes a great plan and some guts to whether some transitional pains.

Free market at work. Many have tried to consolidate the stone industry, with little success.
This opportunity is what make America exceptional and unique in the world. The small guy can make it big in business. No where else on earth is that possibility as great as in America.

[graniteman]

I think the stone industry is unique, we manufacture a custom product not something that can be easily duplicated. Yes there are exceptions to the mass producing but those products don't affect my business. Mass producing a custom product isn't easy, the variation of material, cab sizes, edges and layouts are going to drive someone crazy at large scale.

Even with the perfect process and procedure a custom product will vary incredible from one job to another. It's nothing like making the same bolt or engine block over and over. It takes both machines and people with stone knowledge to make it happen consistently.

Now a billion dollars would make sure you have the ultimate machinery, most efficient shop layout, best advertising and would let you steal some of your competitor's staff. Even if you replaced them with lower wages after your competitor went out of business. But there are other things a billion dollars can buy as well. (See cocaine and hookers lotto winning response)

[Ken Lago]

Correct me if I'm wrong but it seems to me they are bringing a part of what they used to outsource in house. How many different industries are they in ? I think it was all construction types...

[Miles]

If someone like me had a billion dollars, they could sure put a hurting on my business, and most of yours as well. Showrooms in retail places. Unmatched inventory at the lowest possible cost. Huge marketing budget. Well trained sales staff. Well trained sales management staff. Top of the line automated production with software to manage it. Financing if necessary. Soup to nuts on plumbing fixtures and accessories. And locations in all the major markets.

In Atlanta, when the housing crashed back in 2007 or so, it had a ripple effect. All the low priced providers that were servicing the new construction market were desperate to find work. Suddenly the bottom fell out of the retail market and commercial market. We weren't effected directly by the housing crash because we didn't do new construction. But we were effected by the new competition. We had to change our business plan and adapt.

A company like this one can dominate the commercial and new construction market. That will have a ripple effect. And if they do it in the southeast, it will be done elsewhere of it isn't being done already.

Or maybe it won't have any effect.

[Dave.Scott]

If someone like me had a billion mdollars, they could sure put a hurting on my business, and most of yours as well. Showrooms in retail places. Unmatched inventory at the lowest possible cost. Huge marketing budget. Well trained sales staff. Well trained sales management staff. Top of the line automated production with software to manage it. Financing if necessary. Soup to nuts on plumbing fixtures and accessories. And locations in all the major markets.

Usually when I see a Miles post I take notes and bow to the SE -- from Montana.

This time is no different, but I will add a reply.

First: Miles, if you (or I for that matter) had a billion dollars, we'd be waiving at our kids as they flew off to Harvard to finish their MBA or whatever, and not worry about the stone business while we finished our umbrella cocktail.

Now reality. Others have said that this couldn't happen because of the unique nature of this business-- to a point I agree. But, hasn't Lowe's, and Home Depot; both Billion dollar entities, already tried?

They are both smart enough to realize that they do not want the overhead, headache or expense in "operating a nuts and bolts" entity. Look at Sysco vs Rykoff in the food service field.

Sysco has almost put Rykoff out of business. Rykoff was a high quality vertically integrated operation--start to finish. Owning almost every point in the production of food products being sold to restaurants (in the NW) SYSCO was a distributor (like Lowe's and HD) who simply outsourced their problems without accepting the consequences.

Why would a Baazillion dollar investor want all of the headaches?
Unless they had no idea of what they were getting into?

This brings me to a unique situation in my own back yard.

We have an investor in our area.
They went to get into the; Tile/Appliance/ Cabinet/ Plumbing/ Hardwood/slab, business.
They are throwing many $$$$$ into plant and equipment in this market.

The outcome?

Because, not having a realistic business plan, being out of touch of what they were getting in to, having skewed the payroll market so far out of wack, firing so many imported employees, and not being able to finish jobs successfully, they are now facing a lack of confidence from this small market.

They may have Bazillions of dollars, they will continue to believe that they will dominate the market.
If they do not change, they will not.

Throwing money at something does not guarantee success.

[Dan R.]

Besides a custom product, we sell, manufacture and install the products.
Name one other industry where this happens, especial in a high end luxury product.

This is what makes the stone industry so unique.
Add the product fragility, specialty bro for install & limited transport logistics and you have a tenuous business plan, IMO.

This is why most juggernaut models use Quartz as a preferred product. Quartz will likely become vertically integrated well before natural stone.

On a side note, Cosentino just bought their Canadian distributor, Maple Group for $11 million. Maple Group was infamous for bullying fabricators with frivolous lawsuits against fabricators (clients) using any form of the word Stoneworks in their company name.

[Miles]

I agree Dave. But... I will add a couple of caveats.

First, whether or not they make money, they still affect the rest of the market. In Atlanta, we have a couple of 20 millionish a year fabricators and the Atlanta Kitchens behemoth. They effect what the rest of us do, whether they are making money or not. For example, I just got my Cambria price increase. Cambria in this market is controlled by who? Atlanta Kitchens. They control Vetraza. They are the Sage (lowes private label) fabricator. They do all the major commercial work. They have a separate Chinese prefab department. And that's at their 50 to 100 million size. So give them a couple more zeros, and I think it could have a bigger impact.

Second, my brush with investment companies taught me a couple of things. They measure success differently than we do. They are interested in bottom line, sure. But they make money on the top line too. They buy a company for 3x or 6x whatever the bottom line. Thy increase the top line, suck off profits to recoup the investment and sell at 8 or 12x the bottom line because they are selling a bigger company now to bigger investors.

So how do you increase the top line when you're already he biggest game in town? Big contracts. Buy other companies. Drop prices to gain market share. Get exclusivity on product lines.

All of the above effects the whole market.

[Dan R.]

How do you think the small fabricator feels looking up from his $1-2M in sales, just farther back in the line from those unfortunate $10M guys.

Growth is the key to investment. Stock prices are based on future earnings. Higher future earnings= higher stock price. What is the average PE ? This will be the top of the multiple for selling a company.

[Matt Kraft]

How did things turn out for Pulte?

Whether or not they make money initially or not is not the point though. What's been missing from our industry is big money. There are very few companies in our industry backed by big money. I'm not talking about a 50 million a year company. I'm talking about the kind of money to take it to the next level. The kind of money that can lose money to kill competition. Or can buy competition. Or can build their own factory. Or creat their own software.

Every other industry in the history of the world has consolidated (for the most part). It takes people with money to make it happen.

Miles the story on Pulte's ownership in Carstin Brands is still being written. They ran off some good employees, and have changed management numerous times in a few years. Set about an ambitious plan to triple sales in 5 years and the starting point was eight figures. They hammered a stocking program on a dozen or two stocking colors thru their multi state dealer network. To the point that their lead times stretched to 6 and 8 weeks in their fab shop. Dealers got upset and moved some business elsewhere. The surge in production wore out a bunch of their machinery and the replacement cycle while running beyond reasonable capacity wasn't helping them take care of customers any better. We were buying from them until all these things I'm describing happened.

I'd say they are past most of it, and their old Plant Manager, who is a great guy and can handle literally everything, is back with them again.

They focus on K&B market, but have tractor trailers covering a 500 mile radius of their manufacturing plant, with subs doing templates and installs in outlying markets. They do some home center work, although I had heard they were getting away from that recently.