Cost Savings and Merger Driving Builders FirstSource

By Chris Lange Updated Apr 27, 7:34PM EDT · Published Apr 13, 2:20PM EDT

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Most acquiring companies see their stock prices fall when they make acquisitions. Builders FirstSource Inc. (NASDAQ: BLDR) appears to be the exception to this as it has seen its stock rise over 50% after announcing its acquisition plans.

The company announced that it entered into a definitive agreement to acquire ProBuild Holdings. This will be an all-cash transaction valued at approximately $1.63 billion. The transaction is expected to close in the second half of this year.

ProBuild was created in 2006. With approximately $4.5 billion in revenue in 2014, ProBuild is one of the largest distributors of building materials to professional builders, contractors and project-oriented consumers in the United States. ProBuild operates lumberyards, component facilities, millwork shops, gypsum yards and retail stores across 40 states.

Combined, Builders FirstSource and ProBuild expect to have an enhanced portfolio of products with increased breadth and depth within its categories. In addition, the combined company will better serve its customer base through its broader scale and operating footprint, enabling it to deliver products and services more effectively and efficiently.

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The newly combined company expects to make approximately $6 billion in sales and to generate between $100 million to $120 million in annual cost savings.

Floyd Sherman, CEO of Builders FirstSource, said:

Together we will establish a broader, more efficient platform of manufacturing and distribution capabilities, supported by high-quality service from the best talent in the industry. In addition, each of our companies has complementary strengths, and we plan to learn from each other by implementing best practices across the combined company. Builders FirstSource and ProBuild have two of the best sales forces in the industry and share a commitment to enhancing the deep, long-standing customer relationships that each company has cultivated. We look forward to working with the ProBuild team to plan for a seamless integration that will enable us to create exciting new opportunities.

Sterne Agee’s Jay McCanless has a Neutral rating, and the pre-deal news valued Builders FirstSource at $6.00. He has commented on the deal earlier on Monday morning saying

We are maintaining our Neutral rating on Builders FirstSource. Assuming successful closure of the transaction, BLDR will transform from a Southeast-focused distributor to a national distributor with operations in 24 of the 25 largest markets for single family home permits.

As a result of the announcement, Builders FirstSource stock hit a new multiyear high, dating back to 2007. The reaction in the stock alone signaled that investors believe this combined company will be a leader in its the market.

Shares of Builders FirstSource were up 68% at $11.57 Monday, in a 52-week trading range of $4.85 to $11.74. The stock has a consensus analyst price target of $7.75.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.