Building Products Distribution Industry Update Q3 2023

Read more about M&A activity and trends in this sector

Building Products Distribution Update

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Residential Building Product Distribution

Sector Highlights

  • The residential building products distribution industry is segmented into several subsectors. This report will focus on exterior products, interior products, lumber and building materials (“LBM”), and hardscape / landscape suppliers.
  • Primarily serving pro dealer contractors in the new construction and remodeling markets, these distributors provide a critical link between suppliers and a highly fragmented customer base.
  • Given the regional nature of the markets, the distributor base has historically been fragmented as well.
  • The past 2 decades have seen considerable consolidation, leading to well-capitalized super-regional and national players in each subsector.
  • These larger firms are a combination of private equity backed consolidators, public companies, and privately held entities, creating an interesting dynamic for independents looking to be acquired and a ready exit strategy for smaller consolidators.
  • While the sector experienced unprecedented activity post-COVID, rapid inflation in the U.S. economy drove the Federal Reserve to impose significant interest rate hikes, resulting in the highest rate in more than twenty years.
  • Mortgage rates have more than doubled over that time, dramatically increasing the cost of ownership for homebuyers.
  • Economic concerns have resulted in fewer housing starts, which, combined with a hesitancy for existing homeowners to swap a low rate for the current higher rates, have reduced housing inventory and resulted in stubbornly high housing prices.
  • Despite the current disruption faced by the housing markets, there remains systemic issues with housing shortages in the U.S. Household formations have outpaced housing starts, resulting in all-time lows in rental and homeowner vacancy rates.
  • The prevailing sector dynamics suggests longer-term tailwinds for housing construction and remodeling.
  • We anticipate continued M&A as larger consolidators and platforms pursue continued growth in core areas of focus and / or seek to enter adjacencies (ex., HVAC, expansion into commercial building).

Key Themes

1

High Interest Rates Have Led to Market Disruption

2

Inventory Shortages Have Kept Prices Inflated

3

The Market is Stabilizing

4

Favorable Long Term Sector Dynamics

5

Continued M&A Momentum

Exterior

  • Roofing
  • Siding and Trim
  • Windows & Doors
  • Misc

LBM

  • Lumber & Engineered Wood
  • Trusses, Beams and Framing
  • Windows & Doors
  • Misc

Interior

  • Wallboard
  • Steel Studs & Insulation
  • Ceiling & Acoustical Tile
  • Misc

Hardscape/Landscape

  • Outdoor Living
  • Patio, Pavers, Driveway
  • Irrigation & Lighting
  • Misc

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Building Products Distribution Update

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