Anchor Peabody
News & Insights

In keeping with Anchor Peabody’s history of focusing its efforts in niches with the most active merger and acquisition (“M&A”) transaction activity – Anchor Peabody has initiated coverage of the home improvement retail (“HIR”) sector.  Our coverage will include all of the constituents in and around hardware retailing, home centers and hardware stores with a goal of accumulating the type of granular industry knowledge necessary to help our clients achieve outsized M&A outcomes.

Leading Anchor Peabody’s effort in Home Improvement Retail is Brett Millard.  Brett joined Anchor Peabody as a Vice President in 2019 to focus entirely on M&A in the U.S. building industry.  Mr. Millard has over ten (10) years of financial advisory and investment banking experience, and five (5) years of experience in building products serving the home improvement retail and lumber and building material (“LBM”) sectors.  For more information about Anchor Peabody’s HIR coverage and Brett Millard, click here.

Consolidation is ramping up in this highly fragmented market.

The Home Improvement Retail Industry is going through significant change due to consolidation.  In addition to several independent HIR companies engaging in M&A, institutional capital and HIR buying cooperatives have, or will start, platform investments to acquire HIR businesses as they seek synergies such as purchasing power, geographic diversification, and larger enterprises to rollout online solutions.  With over 30,000 home center and hardware stores in the United States, the industry remains highly fragmented and ripe for consolidation.

Positive tailwinds favor industry growth in the near future.

Since 2020, the home improvement sector has been booming. Some of this growth was pulled forward due to pandemic-induced demand, a period of low interest rates, COVID stimulus packages, and the exponential rise in home prices.  Despite the current challenging market environment, HIR has remained resilient throughout 2022 and is expected to fare better during this cyclical downturn before returning to a long-term growth trajectory – which some have coined a potential ‘Golden Era of Remodeling’.  To read our most recent, detailed HIR Industry Update, click here.  

Visit with us at the upcoming Golden Hammer Awards.

From January 30th to February 2nd 2023, we will be attending the National Hardware Show in Las Vegas and sponsoring HBS Dealer’s Golden Hammer Awards.  If you would like to meet with Brett Millard to discuss anything currently going on in HIR, please contact him at  [email protected] or call (317) 774-4497.

About Anchor Peabody

Anchor Peabody is a premier investment banking firm comprised of former owners, operators and investors in the building industry. The firm combines over 100 years of experience with a modern approach to banking to align with client objectives and eliminate banker burnout from the industry model. For more information, visit anchorpeabody.com.

Carrie Meek
[email protected]

In Review

Since 2020, the home improvement sector has been booming. Some of this growth was pulled forward due to pandemic-induced demand, a period of low interest rates, COVID stimulus packages, and the exponential rise in home prices. After over two (2) years of this extraordinary post-pandemic demand on top of a constrained supply chain, 2022 will be remembered as the year of ‘inflation’. The Federal Reserve was late to react, and we currently find ourselves in a heavy-handed response to tame rising prices. Consequently, U.S. interest rates have exceeded levels not seen in two (2) decades prompting fears of a U.S. recession plus downward pressure on consumer sentiment, real income, and housing at-large. It is evident the U.S. housing market is already in midst of a recession, as existing home sales and housing starts have dramatically fallen from this time last year. Despite the challenging market environment, the home improvement sector remained resilient throughout 2022 due to its exposure to repair and remodeling spending and is expected to fare better during this cyclical downturn before returning to its long-term growth trajectory.

2023 Outlook

When thinking about 2023, it is easy to be concerned about the bleak headlines, but the story so far says otherwise. For example, home improvement spending peaked in the third quarter (Q3) of 2022 according to the Leading Indicator of Remodeling Activity¹, but, in the stock market, there was a resounding consensus across the sector of a bullish 2023 outlook after the Q3 earnings releases. Feelings on the market among industry executives is steadier, as most feel 2022 sales growth was clearly driven by higher prices as volumes were down. However, almost to a person, executives felt the sector historically would have experienced a more dramatic pull-back when confronted with the market headwinds we are experiencing today. For us, as we are giving advice on how to think about the current market dynamics, the answer is more nuanced than ever before as mitigating factors have formed a near-term backstop for home improvement retail:

• Excess consumer savings of over $2 trillion was accumulated during 2020 and 2021 which provides the U.S. economy a spending buffer of approximately one (1) year as consumers absorb declining real incomes (due to inflation).²
• Record home equity levels with low subprime exposure concentrated in high income households (incomes greater than $100 thousand) are driving two-thirds (2/3) of home improvement spend.³
• Declining household mobility rates encouraging ‘improve in place’ spending:
  • Mortgage rate lock-in-effect keeping homeowners in place;
  • Exasperated buyer’s remorse of the home fit and finish due to recent bidding wars and unavailability of quality homes; and,
  • Changes in durable product mix as homeowner’s plan to stay in the home longer.
• Evolving lifestyle trends incentivizing immediate comfort, privacy, and functional home design needs:
  • Work-from-home flexibility continuing post-pandemic;
  • Pandemic-driven baby boom altering the family requirements; and
  • Emphasis on home entertainment is creating multi-purpose interior and exterior spaces.

Q4 2022 and Q1 2023 public company earnings releases will be important indications of the direction of the home improvement sector as we move into 2023. We expect this year will be a return to normalcy after a period of unsustainable growth. But the question is how much will Home Improvement Retail be impacted as the full effect of the Federal Reserve policies work through the economic system? We encourage independents to pay close attention to the volatility of the leading indicators to insulate your business on the way down, while preparing for the growth bounce on the backend. Deferred remodeling projects during this cyclical slowdown will be pushed forward materializing when prices stabilize. This cyclical period is forecasted to last 12 to 18 months, which is much shorter than the 2008 Great Recession. Like prior troughs, the home improvement sector’s resiliency will make it more attractive than other sectors who have more exposure to new home construction. We believe most retail businesses are in a great spot as the underlining long-term fundamentals ideally position them to return to a long-term growth outlook for years to come.

Long-Term Outlook

Many economists indicate we are at the beginning of a decade long period of home improvement growth with one reputable economist, Todd Tomalak at Zonda, coining this period as the potential, ‘Golden Era of Remodeling’. In addition to the mitigating factors highlighted above, we believe the underlining long-term fundamentals support such bold growth claims:

Increase in household formation via millennials forming homes.⁴ As the market corrects, sidelined homeowners will return to the market. Some are incentivized more than others due to the recent baby boom of college-educated couples in their 30’s. Deferred projects of new homeowners from the 2020 to 2022 period will restart as sentiment improves.

The median age for an owner-occupied U.S. home is 39 years old and gradually aging.⁵ In regions such as the Northeast, the median age is over 60 years old. Comparatively, the median age of U.S. housing hasn’t been this old since World War II, as more than half of all homes were built before 1980. New construction just has not been able to keep up with housing needs, igniting a surge in remodeling spend. By 2025, a cohort of outdated homes built in the early 2000’s will enter the prime age for big ticket repairs. This major project repair and remodeling spend will be a necessity in the coming years and drive growth for industry participants.

Extraordinary housing price appreciation has influenced home improvement spend.⁶ The 40% rise in the average U.S. housing price from 2020 to 2022 unlocked $11.5 trillion in tappable home equity nationwide or $300,000 of equity per homeowner. Even though home prices are moderating and will continue to correct through 2023, home prices are not expected to fall below 2020 levels – leaving homeowners with plenty of available home equity to invest into their homes. Further, as interest rates decline, mortgage rates will taper, and equity refinances will return – increasing the potential dollars available for remodeling projects.

Remote and flex work schedules are likely to endure post-pandemic.⁷ Going forward, economists estimate 20% of full workdays are to be spent at home which is five (5) times higher than pre-pandemic levels. Home designs will continue to be under pressure to reflect this new way of working, living, and entertaining. The increased use of homes will also add to annual home wear and tear spend.

Mergers & Acquisitions (M&A) Outlook

In tandem with the recent high growth period, M&A activity has increased substantially in home improvement retail when compared to historical periods. With over ten (10) active strategic serial acquirers in home improvement retail, the industry now has more options than most industry sectors for those seeking to transition out of their business. We expect M&A activity to continue its upward trend during the slowdown and beyond. Investors of all types (financial and strategic) are attracted to the sector’s resiliency and long-term growth fundamentals compared to other sectors. Since the cyclical slowdown is forecasted to be relatively short compared to prior cycles, expect investors to continue to grow through acquisitions to better position themselves to capture the growth upswing after this period. In our next article highlighting the home improvement M&A environment, we will dive into the nuances for buyers, sellers and the M&A financing environment.

If you are home improvement participant, please consider Anchor Peabody a resource. Anchor Peabody has a dedicated Home Improvement M&A advisory practice where we seek to know who is doing what to who and why more so than anyone else. We consider ourselves part of the fabric of this community, and welcome conversations on any front from owners and executives interested in discussing the strategic and financial alternatives and/or the impact of M&A on their business.

==================================

¹ Joint Center for Housing Studies of Harvard University.
² Bureau of Economic Analysis.
³ Federal Reserve.
⁴ US Census Bureau.
⁵ US Census Bureau.
⁶ S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.
⁷ National Bureau of Economic Research.

Anchor Peabody Represents STC Floors (previously Swiff-Train Company) in its Sale to Belknap-Haines

DELRAY BEACH, Fla. – OCTOBER 17, 2022 – Belknap-Haines, one of the largest flooring distributors in the US, servicing the East Coast from Maine to Florida, announced it has acquired Texas-based STC Floors, (previously Swiff-Train), #20 on Flooring Covering Weekly’s Top 25 Distributors of 2021.  Anchor Peabody, the premier investment bank for the building industry with a dedicated M&A practice in flooring, served as exclusive financial advisor to STC Floors.

Headquartered in Houston, STC Floors is a leading distributor of vinyl, engineered, hardwood, carpet, and tile flooring and related supplies. Over the past 85+ years, the Company has established a leading market position by developing best-in-class sourcing capabilities and providing an unmatched combination of products and solutions to meet its customers’ needs from Florida through south central US.

“Anchor Peabody was honored to represent STC Floors in this transaction,” said Aaron Toomey. “Through the acquisition, Belknap-Haines will expand not only its distribution area west through Texas but also the breadth of its product offering and density of its coverage in markets like Florida.  This transaction is further evidence of the continued consolidation in flooring distribution as acquirers see opportunities for better sourcing, more geographic diversification, and increased market share.”

Achor Peabody was founded in 2011 with the sole mission of providing the building industry with the most professional, informed, useful, and unbiased M&A advice.  Aaron Toomey joined in 2021 to focus entirely on M&A in the flooring industry.

About Anchor Peabody

Anchor Peabody is a premier investment banking firm comprised of former owners, operators and investors in the building products and construction industry.  The firm combines over 100 years of capital markets and mergers & acquisition experience with a modern approach to investment banking. Anchor Peabody prides itself on providing outsized outcomes for its clients, by maximizing banker satisfaction, both professionally and personally.  For more information, please visit www.anchorpeabody.com.

Contact: Carrie Meek // [email protected]

State of the Industry

There’s just one question after a year of rapid growth, rising prices, and record-setting profitability in the flooring industry: How do we top it?

So it was with this year, coming off the whirlwind that was 2021.  Work from home policies, COVID relief, a strong economy with low unemployment, rising home prices and low interest rates all combined to make 2021 a year for the ages.  2022 is three quarters of the way over; how have we stacked up against such a banner benchmark?

The overwhelming feedback we’re hearing from both public and private market participants is mixed.  Volumes are down, but prices are up or steady.  Higher interest rates, falling home sales, and shaky consumer confidence combined to slow the breakneck pace of growth we saw last year.  Retail foot traffic is down and fewer second home sales are slowing the demand for remodel projects.  However, with tight supply chains and product availability continuing to be a problem, price increases have been the saving grace (for those fortunate to be able to get product to market).  Floor and Décor, for instance, reported a 13% increase in same store sales through the quarter ended June 30, largely driven on price inflation but also warned on softening demand.

Q1-Q3 M&A Dealflow

The murky market has had an impact on both buyers and sellers.  In the first half of the year, M&A was flourishing in flooring with some marquee transactions.  In April, Platinum Equity’s Paramount Global Surfaces (home to Happy Floors and Ceramic Technics) acquired Stone Source, doubling down on a rebound of commercial flooring surfaces.  The next month, Bauwerk Parkett, the Swiss manufacturer, purchased Somerset Hardwood in a bet on the U.S. hardwood flooring market.

The second half of the year to date has seen a M&A slowdown, as buyers remain cautious about future earnings profiles, the sustainability of margins, and the fate of the single-family home market.  Sellers remain opportunistic, but balance sheets after years of strong earnings have them in a very comfortable spot to wait out buyers looking to trade down on the negative economic news.

A particular bright spot has been the services and installation space, especially those with long-term, recurring multi-family or commercial businesses.  Blue Sage Capital’s Impact Property Solutions       completed four bolt-on acquisitions this year.  Georgia-based Real Floors completed a merger with Ardor Carpet, which greatly expanded the combined company’s geographic reach.  Shop-at-home retailers/installers also continue to thrive, with Empire Today adding California-based Sitton Flooring, and Georgia-based 50 Floor green-fielding new locations.

2023 Market Outlook

For owners and operators looking forward, we offer the following insight.

Inside the walls of Anchor Peabody, we believe single-family residential housing exposure will likely continue to face headwinds in the short term.  The full impact of last year’s run up in prices and this year’s interest rate increases continue to work their way through the system.  We anticipate continued, slowing growth of new housing starts and further builder concessions to help prop up demand.  Given longer than usual build cycles, these changes may take some time to show up in flooring and interior finishes.  However, we also believe long-term housing fundamentals remain strong, and most markets still suffer from being under-built.  We expect this market to settle out over the next 6-12 months before heading back on the path to growth; the hardest part about it is figuring out the exact timing.

Multi-family residential housing remains a strong bright spot with starts continuing at a robust level not seen since the 1980s as single-family affordability and financing issues have pushed more households into multi-family.  We are very bullish on companies with exposure to new multi-family construction in the near-term, but especially to the rip-and-replace tenant turnover business.  We expect continued acquisition activity as contractors in the space are acquired, and some consolidators may venture outside of flooring into adjacencies such as countertops and appliances.

In commercial construction, we expect a mixed bag.  Luxury retail and hospitality should continue to recover from their COVID-induced troughs as consumers get back to travel and shopping. However, a meaningful recession could hurt mid-tier and discount retailers, restaurateurs and lodgers.  A certain amount of commercial office and business travel space may never fully recover in the wake of permanent work from home transitions.  This said, we do believe education and healthcare markets will continue their near recession-proof track record.

Flooring M&A in 2023

Looking ahead to 2023 with the benefit of what we’ve learned this year, what does the flooring M&A landscape look like?

• More Consolidation. Expect distributors and contractors to continue to consolidate and      reap the benefits of scale (purchasing power, rebates, geographic diversification, working capital management, etc.)

• Retailers Join the M&A Mix. While manufacturing is far down a consolidation path, and distribution is beginning in earnest – retail is in its M&A infancy.  Competition with the big box retailers and market entrants of buyers with a consolidation thesis (e.g., 31st Capital Partners) should jumpstart M&A in the space.  Independent dealers, both buyers and sellers, should begin considering their short- and long-term M&A plans for how to participate and position themselves in the coming consolidation.

• Separating the Good from the Great. Warren Buffet has a great quote: “Only when the tide goes out do you discover who’s been swimming naked.”  While the rising tide of late 2020 and 2021 buoyed all ships, as things come down to earth we’ll see which companies are exceptionally run.  Operations with a diverse customer base, those who produce strong margins, manage working capital well, are in favorable geographic regions (West Coast, Rocky Mountain West, Southeast), and have strong, tenured management teams will appeal most to buyers.  These companies will also likely be the best positioned to be acquisitive, and/or take market share from those who are not as strongly run.

Flooring M&A participants across the industry should begin to think about how consolidation will impact their markets and how to prepare/ position their businesses for an outsized outcome in a sale process, should they go that route, or as the buyer of choice if they’re acquisitive.

As we head into uncertain times, please consider us a resource.  Anchor Peabody has a dedicated flooring M&A advisory practice where we seek to know who is doing what to who and why more than anyone else.  We welcome conversations on any front from owners and executives interested in discussing the strategic and financial alternatives for their business and/or the impact of M&A on their business.

Anchor Peabody Represents Foxworth-Galbraith in Acquisition by USLBM Holdings, Inc.

DELRAY BEACH, Fla. – August 1, 2022 – USLBM Holdings, Inc. has finalized its acquisition of Foxworth-Galbraith, a leading building materials supplier in the Southwest with over $1 billion in revenues.  Anchor Peabody (“Anchor”), the premier investment bank for the building industry, served as the exclusive advisor to Foxworth-Galbraith throughout the transaction process.

Headquartered in Plano, Texas, FoxGal services professional contractors, commercial contractors and homeowners in five states including Arizona, Colorado, New Mexico, Oklahoma and Texas.  It provides the full suite of lumber and building materials products to its customers.

“Anchor Peabody was proud to represent the Foxworth and Galbraith families in this transaction,” said Managing Partner Jason Fraler. “Through this acquisition, USLBM will add substantial coverage in the Southwest to its expanding national footprint with the FoxGal locations.”

Anchor Peabody has generated over $2 billion in transaction value for its clients in the lumber and building materials (LBM) space alone.  Anchor has recently expanded its focus to include other building industry sectors including flooring, with plans to announce expansion into other industry sub-verticals in 2023.

About Anchor Peabody

Anchor Peabody is a premier investment banking firm comprised of former owners, operators and investors in the building industry. The firm combines over 100 years of experience with a modern approach to banking to align with client objectives and eliminate banker burnout from the industry model. For more information, visit anchorpeabody.com.

Anchor Peabody Signals Growth, Expansion with Slate of New Hires

DELRAY BEACH, Fla. – April 26, 2022 – Anchor Peabody, a leading investment banking firm for the building products and construction industry, has expanded its team of senior executives and banking professionals as part of an ongoing strategy to serve high growth sectors across the industry.

Carrie Meek has joined Anchor Peabody as Chief Growth Officer. Ms. Meek has over 15 years of industry experience as a former private equity portfolio company director and a family business owner and operator. In her role as Chief Growth Officer, Ms. Meek is tasked with building Anchor Peabody’s brand awareness and supporting the firm’s expansion into new building product sub-verticals.

“Anchor Peabody has created a uniquely different business model in investment banking, prioritizing employee development and satisfaction, which I am proud to be a part of,” said Meek. “This is an environment where highly qualified bankers are fully supported by the firm to become the best versions of themselves while providing unmatched service and deep industry focus to clients.”

Aaron Toomey has joined Anchor Peabody as Managing Director of the firm’s new flooring sector. Mr. Toomey has over 12 years of financial advisory and investment banking experience, the bulk of which is in building products, including roles with the J.P. Morgan M&A Group in New York and the industrial M&A group at SunTrust Robinson Humphrey (now Truist Securities).

“Between continued demand from COVID-delayed projects and a robust repair and remodel outlook, there are strong tailwinds for the flooring market,” said Toomey. “We’re seeing sustained interest from both large companies and financial acquirers, and my team spends all of its time working on helping owners and operators within the flooring industry to capitalize on this very positive M&A dynamic.”

Joe McKeon and John Gould have joined Anchor Peabody as associates focusing on M&A and other financing advisory services. Mr. McKeon previously worked in the M&A group of Lutz & Company and Robert W. Baird’s Technology & Services Investment Banking practice in Milwaukee. Mr. Gould comes to Anchor Peabody from Northstar Capital in Minneapolis. Prior to this, he worked in the diversified industrials and services group of Minneapolis-based investment bank Piper Jaffray.

About Anchor Peabody

Anchor Peabody is an investment banking firm comprised of former owners, operators and investors in the building products and construction industry. The firm combines over 100 years of capital and mergers & acquisition experience with a modern approach to banking to align with client objectives and eliminate banker burnout from the industry model. For more information, visit anchorpeabody.com.

Anchor Peabody Announces Record 2021 With $1B+ in Transaction Value

DELRAY BEACH, Fla. – February 16, 2022 – Anchor Peabody, an investment banking firm specializing in the building products and construction industry, today announced their transaction results for the 2021 calendar year, including more than $1 billion in transaction value in the lumber and building materials (LBM) sector.

“These results–the highest of any investment bank working in the LBM sector–speak for themselves. We are the go-to bank for LBM companies looking for merger and acquisition advisory services,” said Anchor Peabody Managing Partner & Co-Founder Jason Fraler.

Anchor Peabody’s $1 billion+ in LBM transaction value in 2021 is comprised of four sell-side deals, which are detailed below.

Phoenix, AZ-based Alliance Lumber to Builders FirstSource

Cape Cod, MA-based Mid-Cape Home Centers to US LBM

Traverse City, MI-based Northern Building Supply to US LBM

Raleigh, NC-based Professional Builders Supply to US LBM

Anchor Peabody was proud to represent Alliance Lumber and Professional Builders Supply, largely considered the preeminent LBM operations in their regions, in the two most significant transactions by strategic importance, size and valuation to happen in LBM during 2021. Alliance is the largest independently operated supplier of building materials in Arizona, recognized as one of the fastest growing housing markets in the United States. Professional Builders Supply is the largest independent LBM supplier in North and South Carolina, ranked 20th on 2020 ProSales 100 List of the largest U.S. construction supply dealers.

“Anchor Peabody’s deep industry knowledge and relationships within the LBM space enabled us to achieve incredible outcomes for these companies in 2021,” said Fraler. “We look forward to building on this success in 2022 as we continue to grow our business in the sector and across the rest of the building products industry.”

In 2022, Anchor Peabody plans to capitalize on growth opportunities and expand its team of senior bankers and executives across the building products industry, including flooring, outdoor living and construction services.

About Anchor Peabody

Anchor Peabody is an investment banking firm comprised of former owners, operators and investors in the building products and construction industry. The firm combines over 100 years of capital and mergers & acquisition experience with a modern approach to banking to align with client objectives and eliminate banker burnout from the industry model. For more information visit anchorpeabody.com.

2022 Flooring Market and M&A Update and Industry Outlook