Foundation Building Materials LLC, a Tustin-based distributor of wallboard, ceiling systems, and other products that’s used an aggressive roll-up acquisition strategy to build its business, is hitting the reset button.
The company (NYSE: FBM) announced late last month that it plans to sell its mechanical insulation business, which fabricates and distributes commercial and industrial insulation products through 67 branch and fabrication locations across the U.S. and Canada.
The division brought in about $82.8 million in sales last quarter, up nearly 20% year-over-year. Its products are sold to insulation contractors, HVAC contractors, and general contractors, as well as large industrial facilities.
For the 12 months before the sale was announced, revenue was $296 million, and the division represented about 14% of Foundation’s overall revenue, the company said in a presentation following the sale announcement.
Dunes Point Capital of Rye, N.Y. is paying $122.5 million for the division.
It’s the largest-ever sale for FBM, which was formed in 2011 and went public last year, raising nearly $180 million in its initial public offering with shares priced at $14 each.
The deal “will sharpen FBM’s focus on growing our more profitable businesses while driving superior service and productivity for our customers,” Chief Executive Ruben Mendoza said in a statement.
The division’s gross margin over the past year was 27.8%, the remaining business lines of the company 29% over that time.
Following the sale, which is scheduled to close by the end of the year, about 38% of FBM’s business will come from its drywall business; ceiling systems will represent 19% of sales; and metal framing will be 17%, the rest coming from complementary and other products.
Its remaining product lines are largely sold to contractors that install them in commercial and residential buildings for both new construction and repair and remodeling projects.
The company’s stock is down about 5% since the sale was announced, and its shares are off some 16% this year. Shares traded around $12.49 for a market value of $536 million at press time last week.
Debt Focus
Proceeds from the sale will help ease FBM’s debt load, which stood around $620 million as of June, regulatory filings show.
“We’re concentrating heavily on paying down debt,” Mendoza said in an analyst call following the Sept. 27 sales plan announcement.
A good portion of the proceeds from last year’s IPO also went toward paying down debt, which FBM loaded up on as it quickly built its business.
The company began with a single branch in Southern California. It now has more than 200 branches.
Sales have gone up more than 10-fold over the past five years, according to regulatory filings.
That growth has been overseen by Dallas-based private equity firm Lone Star Funds, its largest investor with some 65% of the company’s shares as of midyear.
It acquired the mechanical insulation business lines as part of a larger buy in 2016; within a year FBM realized that side of the company was a noncore business and early this year began the process to divest it, Mendoza said.
The company isn’t done with acquisitions, Mendoza told analysts.
“We’re seeking good opportunities,” he said, noting that the M&A market remains strong.
“There’s a lot going on there.”
FBM’s already announced one smaller acquisition this month, buying an independent distributor of drywall and steel framing in South Dakota on undisclosed terms.
