Lumberyard / building supplies company diligence

searcher profile

January 08, 2023

by a searcher from The University of Texas at Austin - Red McCombs School of Business in Des Moines, IA, USA

Has anyone bought or gone under LOI on a lumberyard/building supplies business?

I’m considering submitting an LOI on one. What are the pitfalls in this type of business? Is there anything unique to this type of business I should be digging in on?

Thanks for any help you can provide!

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Reply by a searcher
from Duke University in Tulsa, OK, USA
I looked very closely at one and submitted a LOI but the owner and I couldn't agree on price and terms.

My opinion of a business like this is that it is all about maintaining and growing volumes while controlling cost. This is similar to any other commodity business since everyone will know the price of lumber as disclosed on RamdonLinks.

I would be focused on the key employees and if there is any customer concentration.
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Reply by a searcher
from Hillsdale College in New York, NY, USA
we looked at a few. Most cannot tell you how their growth in 2021 and the first half of 2022 split out between pricing and volume. We all know it's 150% price increases and 25% volume decreases, but no one is willing to admit that, and they want to get paid as if 2021 is the new normal. Remember too that there will be a housing downturn at some point, and make sure you are comfortable with debt service if prices drop 20% from historical norms and volumes are flat or down slightly.

It's a commodity business, and no matter how much they try to convince you that they are unique and value-added, they almost certainly are not.

Also look closely at capex -- any increase in capacity will probably have to come from new equipment or running existing equipment for more hours per day (which = more maintenance cost and more frequent replacement).
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