Jul 27, 2015 - Distributes its products to contractors, builders, architects and building owners through 83 ... Source: Company website, management presentation. ... Top 10 Customers: 9%. 80% ... Top 100 represented only 29% of sales.
Acquisition of Roofing Supply Group Strategic combination of two leading roofing distributors
July 27, 2015
Disclaimer Before we begin, I would like to remind you that during the course of this conference call, management may make statements that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, such statements are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. You are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to Beacon Roofing Supply on the date hereof. Beacon Roofing Supply undertakes no obligation to publicly update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise. Such forwardlooking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the Company’s growth strategies, including gaining market share, or the Company’s revenues and operating results being highly dependent on, among other things, the homebuilding industry, asphalt shingle prices and the economy. The Company may not succeed in addressing these and other risks. Further information regarding factors that could affect the Company’s financial and other results can be found in the risk factors section of Beacon Roofing Supply‘s most recent annual report on Form 10-K filed with the Securities and Exchange Commission. Consequently, all forward-looking statements made on this call are qualified by the factors, risks and uncertainties contained therein. In addition, numerous factors could cause actual results with respect to Beacon Roofing Supply’s proposed acquisition to differ materially from those in the forward-looking statements, including without limitation, the possibility that the expected synergies, cost savings and tax efficiencies from the proposed transaction will not be realized, or will not be realized within the expected time period; the risk that the Beacon Roofing Supply and Roofing Supply Group (RSG) businesses will not be integrated successfully; the ability to obtain governmental approvals of the proposed transaction on the proposed terms and schedule contemplated by the parties; disruption from the proposed transaction making it more difficult to maintain business and operational relationships; the risk of customer attrition; the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions; and the ability to obtain the debt financing contemplated to fund the cash portion of the transaction consideration and the terms of such financing. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the forwardlooking statements contained herein. Other unknown or unpredictable factors could also have material adverse effects on Beacon Roofing Supply’s future results. Finally, in no way does this call constitute an offer to sell or the solicitation of an offer to buy any securities of Beacon Roofing Supply or any other issuer, nor shall there be any sale of any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
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Today’s Presenters
Paul Isabella President and Chief Executive Officer
Joe Nowicki Executive Vice President and Chief Financial Officer
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Beacon Roofing Supply’s Acquisition of Roofing Supply Group Beacon today announced that it has entered into an agreement to acquire RSG in a cash and stock transaction valued at approximately $1.1 billion
Combined Company to Generate Approximately $3.7 Billion in Revenue Across 356 Locations
Significantly Expands Beacon’s Geographic Footprint in Southern and Western United States
$50 Million in Expected Annual Run-Rate Synergies
Immediately Adjusted EPS Accretive and Provides Significant Tax Attributes
Positions Combined Company to Better Capitalize on Continued Recovery in Roofing and Housing Markets
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Transaction Overview and Economics Purchase Price
$1.1 billion in cash and stock
$286 million in cash and $291 million in Beacon stock and options (fixed exchange ratio as of signing) – RSG’s net debt of $565 million to be refinanced
$50 million annual run-rate pre-tax synergies
Immediately accretive to earnings
Significant expected tax attributes, including approximately $130 million in net operating losses, existing intangible deductions of approximately $190 million and transaction-related deductions of approximately $50 million
Combined company is expected to generate significant cash flow
$1.1 billion in fully committed financing associated with the acquisition – Anticipated allocation of debt instruments: • $700 million 5-year ABL, $350 million drawn at close for transaction financing purposes • $450 million 7-year Term Loan B • $300 million 8-year Senior Unsecured Notes
As a result of the acquisition, CD&R will own approximately ~15% of the pro forma company
CD&R will also have two seats on the board of the combined company
Customary regulatory approvals and closing conditions
Targeted to close on October 1st, 2015
Form of Consideration
Synergies
Financial Impact
Transaction Financing
Governance
Timing and Closing Conditions
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Overview of Roofing Supply Group Business Overview
Long-Standing Supplier Relationships
Founded in 1981 in Houston, TX (Headquartered in Dallas, TX)
Top Suppliers
RSG is a leading wholesale distributor of roofing supplies in the U.S.
Supplier
Tenure (Years)
Supplier
Tenure (Years)
Distributes its products to contractors, builders, architects and building owners through 83 branches in 24 states of the U.S.
~15
>25
Operates through two segments, Residential (62% of 2014 sales) and Commercial (38% of 2014 sales)
~15
>25
>25
>25
~15
>25
‒ 78% related to re-roofing More than 20,000 SKUs spread across both residential and commercial products Owned by Clayton Dubilier & Rice since 2012 2014 Revenue: $1.1 billion
Revenue Breakdown (FY2014) By Geography
Western U.S. 30%
Central U.S. 34%
Diversified and Loyal Customer Base
Eastern U.S. 36%
Commercial Reroofing 33%
Commercial New Construction 5% Residential New Construction 17%
FY2014 Revenue: $1.1bn
Source: Company website, management presentation. Note: RSG’s fiscal year ends December 31.
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RSG sells to a diverse and highly fragmented customer base
By End Market
– Customer base of more than 7,000 active roofing contractors, home builders and retailers Residential Reroofing 45%
– No single customer accounted for more than 1.6% of 2014 sales
2014 Sales to Top Customers Top 10 Customers: 9% Top 25 Customers: 15% Top 50 Customers: 20%
– Top 100 represented only 29% of sales
78% Re-roofing
– RSG’s extensive branch footprint allows for service to both local and national customers
80% 80%
Roofing Supply Group History of Growth Acquisition and Growth History (1981-Present)
Ron Pugh Opened First Branch in Houston, TX
Acquired Northwest Roofing Supply in Oklahoma City
RSG Hits $500M in Annual Sales
First Branch on West Coast Opens (Oakland)
Ft Worth Opens
Acquired Supreme Building Products in Tuscaloosa, AL
Achieved $1 Billion in in Annual Sales
CD&R Acquires RSG from The Sterling Group
The Sterling Group Acquires RSG
5 New Branch Openings through June
Austin Opens
1981
1988 1984
1990
2002 1992
Dallas Branch Opens (Vin Perella Joins RSG)
First Branch Outside of Texas Opens (New Orleans)
Source:
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Company management presentation.
1993–2001
2004
2006 2005
15 New Branch Openings
2010 2007
2011
5 New Branch Openings
8 New Branch Openings Increased Branch Count to 40
Nov 16, 2014
2012
Acquired CRI in Northern California and Intermountain Supply in Washington
2013
2014
8 New Branch Openings
9 New Branch Openings
2015
Benefits for Key Stakeholders
Customers
Employees
Partners
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Expanded geographic footprint
Broader range of industry-leading products
Larger fleet for deliveries and service readiness
Aligns directly with our strategic plan focusing on customer service excellence and profitable growth
Expanded footprint will provide increased development and career growth opportunities for talent across both organizations
Superior employee benefits including healthcare, 401K and profit sharing
Strengthen relationships with existing suppliers
Opportunity to participate in a combined company with much greater volumes
Investment Highlights
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Improved Geographic Footprint
1
Greater Diversification and Complementary Expertise
2
Better Scale in a Fragmented Market
3
Significant Cost Synergy Potential
4
Optimal Timing
5
Significant Cash Flow Generation Supports Deleveraging
6
Favorable Acquisition Financing
7
1
Improved Geographic Footprint
Improved distribution platform with increased exposure to the Southern and Western U.S. 273(1)
83 Locations
Locations
Total Pro Forma Locations: 356(1) 6 locations Northwest
Significant Increase in Presence in the States with Highest Issuance of Building Permits(2) Top 5 States
YTD Permits Issued(3)
Texas
44,911
Florida
25,889
11.5
California
17,748
13.8
North Carolina
15,165
3.7
Georgia
12,964
22.0
Top 5
116,677
10.6%
U.S.
273,372
8.5%
8.5%
68 locations Midwest
Texas
111 locations Northeast
Florida
+46% increase in locations (13 new)
+50% increase in locations (6 new)
California 37 locations Southwest
61 locations South Central
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YTD Y-o-Y growth(4)
47 locations Southeast
Sources: Management and U.S. Census Bureau. (1) Totals include Canadian locations and are pro forma for the acquisition of ProCoat Systems. (2) Top Metropolitan Statistical Areas (MSAs) based on 2014 Single Family Home Building Permits per U.S. Census data. (3) Year to date as of May 2015. (4) Represents year-over-year growth from YTD period May 2014 to May 2015.
+75% increase in locations (12 new)
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Greater Diversification and Complementary Expertise Sales by End Market
FYE 2014
Beacon
RSG
Complementary Building Products 15% Residential Roofing 48%
Pro Forma Complementary Building Products 10%
Non-Residential Roofing 38%
Highest-margin segment
Residential Roofing 52%
Residential Roofing 62%
Non-Residential Roofing 37%
Non-Residential Roofing 38%
Sales by Geography FYE 2014
Beacon
Northwest 1% Midwest 10%
RSG
Canada 8%
Northwest 7% Midwest 8%
Northeast 34%
Pro Forma Northeast 14% Southeast 12%
Southwest 7%
Northwest 3% Midwest 9%
Canada 5% Northeast 27%
Southwest 11%
Southwest 17% South Central 18%
Southeast 22%
Source: Company presentations and filings. Note: RSG’s figures are calendarized to match Beacon’s fiscal year of 9/30.
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South Central 42%
South Central 26%
Southeast 19%
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Better Scale in a Fragmented Market Estimated Roofing Industry Market Share(2)
Roofing Industry Overview
Roofing is a $21 billion industry(1)
Pro Forma
16%
Beacon is the second largest roofing distributor in North America
Rest of Top 4(3) Company 1: 25% Company 2: 6% Company 3: 6% Others
Pro forma Beacon sales will be more than $1 billion greater than its next largest competitor
Number of Roofing Distributors
1,500 Total
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Multi-Regional Roofing Players
75 Are in more than one region
Source: The Freedonia Group, Pro Sales Magazine. (1) Represents sales by manufacturers. (2) Top 4 share estimate based on sales figures in Pro Sales Magazine, May 2015. (3) Figures may not sum due to rounding.
Other Roofing Suppliers: 48%
Top 5 Distributors
Account for ~52% of industry sales
Significant Cost Synergy Potential
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Estimate of Synergy Opportunity
Run-Rate Synergies and Timing of Expected Realization $50 $47
$50mm
$30
Beacon has successfully acquired and integrated 28 businesses since its IPO in 2004 Run-rate cost synergies conservatively represent ~5% of RSG’s 2014 sales Management, with support of external consultants, has developed a detailed plan for the implementation of its cost synergy initiatives
Source:
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Global management consulting firm.
% Achieved
60%
95%
100%
Year 1
Year 2
Run-Rate
Beacon management anticipates rapidly realizing potential synergies, reaching near full run-rate by Q2 2017
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Optimal Timing: End Markets
Both Housing and Non-Residential markets are in the early stages of a significant cyclical recovery. New Home Starts (From 2000A – 2016E)
1,603
1,569
329
338
Single Family
1,848
1,705
349
346
1,956 345
2,068 353
Multi Family
1,801 336
Long-Term Average: 1,473
1,355 309
1,273
1,231
2000
2001
1,499
1,359
1,611
1,716
906
622
554 109 445
587 116 471
609 178 431
2008
2009
2010
2011
284
1,465 1,046
2002
2003
2004
2005
2006
2007
781
925
1,003
1,400 1,109
363
362
307
356
535
618
647
747
2012
2013
2014
2015E
2016E
$390
$411
$434
245
1,037
U.S. Spending on Non-Residential Construction ($ in billions)
$463
13
$342
$347
2000
2001
Source:
NAHB, FMI Corporation.
$319
$309
$324
$346
2002
2003
2004
2005
$500
$432
$390
2006
2007
2008
2009
$346
$336
$354
$355
$370
2010
2011
2012
2013
2014
2015E 2016E 2017E
Optimal Timing: Roofing Market
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….And most owners are forced to invest in repairs…
Households in America are getting older… Median Age of Owner-Occupied Housing
88% of U.S. re-roofing demand is non-discretionary
40
Upgrade Appearance 11%
38 years 35
Other Deteriorating 2% 7%
Leaks 33%
30
Weather Damage 14%
25
23 years
20
Old 33%
15
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
….While roofing volume is still below long-term averages
Change From Peak Levels % decline from total peak (2005) % decline from major storms peak (2008) % decline from reroof peak (2005) % decline from new construction peak (2005)
U.S. Asphalt Shingle Market (Sq. Ft. in mm)
38.2% 72.7 28.4 53.8
173 143
33
136 30
143 31
144 32
154
161
155
Long-Term Average: 135mm
39 34
37
35
129
135
17 26
120 108
11
122
118
11
14
11
107
3 1999
103
109
110
3 2000
3
2
2001
2002
113
116
116
100
7 2003
8 2004
18 2005
Major Storms
Source:
14
96
112
8 2006
3 2007
Re-roof Demand
93
93 91
22
17
2008
2009
6 2010
New Construction
Asphalt Roofing Manufacturers Association, Summary of Asphalt Roofing Industry Shipments. U.S. Census Bureau. National Association of Realtors existing home sales and Owens Corning management estimates. ELK. F.W. Dodge.
94
19
11
2011
2012
111
107
17
18
88
83
6 2013
6 2014
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Significant Cash Flow Generation Supports Deleveraging Strong Deleveraging Profile
Illustrative Net Debt / Pro Forma EBITDA
• Pro forma net debt of $1.1 billion at close – Strong liquidity position with $350mm of ABL availability for seasonal working capital needs and acquisitions Below ~2.0x in three years
• Rapid expected deleveraging driven by: – Cost synergies realization – Earnings expansion – Strong free cash flow generation enhanced by recovering housing sector – Low ongoing capital expenditure – Utilization of tax attributes, including approximately $130 million in net operating losses, existing intangible deductions of approximately $190 million and transaction-related deductions of approximately $50 million
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1.5x
Beacon Status Quo 03/31/2015
Pro Forma at Close
Within 3 Years
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Favorable Acquisition Financing The current financing environment along with Beacon’s leverage profile provides an opportunity to secure favorable financing terms
Liquidity
More than $350 million of liquidity at close, including ABL capacity and excess cash for seasonal working capital requirements and acquisitions
Anticipated allocation of debt instruments: – $700 million 5-year ABL, $350 million drawn at close for transaction financing purposes
Debt
– $450 million 7-year Term Loan B – $300 million of 8-year Senior Unsecured Notes Estimated Weighted Average Cost of Debt: ~4%(1)
Equity
Source: Management. (1) Does not include $350mm of undrawn ABL at close.
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$291 million in new stock and options
Acquisition Provides Significant Opportunities An Exciting Opportunity to Drive Growth and Create Significant Shareholder Value
Enhances Growth Strategy Expands Geographic Presence and Diversity Significant Cost Synergies and Tax Attributes Enhanced Free Cash Flow Generation / Expected Deleveraging Optimal Timing Immediately Accretive to Earnings
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