On May 11, ABC Supply Co. Inc. announced that it had agreed to acquire Bradco Supply Corp. The transaction was completed on June 30, creating the largest national distributor of exterior building materials with 480 locations in 44 states and the District of Columbia and combined sales of over $4 billion. Roofing Contractor Editor Chris King interviewed David Luck, ABC Supply’s President and Chief Executive Officer, who shared his insights on the acquisition, future plans for the company, and the implications for roofing contractors.
David Luck: The acquisition of Bradco was appealing for many reasons. It takes ABC Supply into 60 new markets. And there are, of course, the cost savings that come with eliminating redundant expenses; ABC Supply will be able to absorb the back-office and corporate expenses for very little incremental increase in costs.
The primary attraction, however, was that Bradco’s customer segments were significantly different than ABC Supply’s. Nationally, common customers represent less than 12 percent of the combined customer total.
One area of particular interest was Bradco’s share of top-tier commercial roofing companies. As you know, manufacturers of commercial roofing products for top-tier customers typically limit their distribution in each geographic market. Bradco was founded in 1966 and grew to become the largest top-tier commercial distributor. ABC Supply was founded in 1982, and by the time we were up and running in the mid 1980s, top-tier distribution in virtually every market had already been established with Bradco and others. This made it very difficult for ABC Supply to rapidly expand its presence in the large commercial roofing segment.
ABC Supply has always wanted to be a bigger player in this part of the roofing industry. The acquisition of Bradco now helps us achieve this objective. We are very excited about maintaining and growing this part of the business. Our goal is to not only maintain Bradco’s leadership in this area, but to also use some of ABC Supply’s strengths, such as our national footprint, to enhance this capability.
There are many ways we can leverage our strengths to benefit customers, suppliers and building owners. We are now restructuring our organization to maximize this opportunity. This initiative will be led by a senior officer of the company and we are prepared to provide the necessary resources to ensure success. This is one of our highest priorities.
RC: This is the largest acquisition of a roofing materials distributor ever. What were the biggest hurdles?
Luck: Transactions of this size can be very complex. Once we confirmed synergies and cultural compatibility, there were two basic hurdles to completing the transaction. One was reaching an agreement on value. The other was agreeing on the thousands of details that are required to finalize the agreement. We crossed both hurdles with goodwill, hard work and creative solutions.
RC: How long was the deal in the making?
Luck: In July 2008, Advent International acquired majority ownership of Bradco from Bradco’s founder, Barry Segal. ABC Supply and Advent entered into preliminary exploration discussions in April 2009 and reached the framework of a deal in October 2009. The details of the agreement were then negotiated and a tentative agreement was signed on May 8 and announced publicly on May 11. We closed the transaction on June 30.
Luck: In a sense, the downturn helped enable the acquisition. In 2005 we updated our strategic plan and set the goal of growing to 500 locations and $5 billion in sales. Because at that time valuations were so high for potential acquisitions, we decided to open new start-up locations as our primary path for growth. With the downturn in the national economy, we modified this plan and stopped adding greenfield locations. We simply did not want to add new capacity to an industry with significantly reduced demand. Because of this, we changed our direction to grow by acquisition. We believed new opportunities would emerge as values adjusted to more normal levels.
We believe that the downturn in our industry has hit the bottom. However, we also believe that growth over the next three years will be very slow.
RC: Could you please describe the process planned for integrating the companies and their branches?
Luck: There are two distinct pieces of the integration plan. The first relates to national headquarters and back-office support functions. The second piece is the integration of Bradco field management and branches.
Our plan is to absorb all of the Bradco corporate and back-office functions and install our operating and point of sale system by Dec. 31 of this year. These functions will be primarily absorbed by ABC Supply at our National Support Center (NSC) in Beloit, Wis. We are doing this in an open and respectful manner and have created excellent above-market severance and stay bonus programs. In addition, we have hired most of the key business managers from Bradco’s corporate team to work in various positions at NSC and in other field positions.
The second part is totally different. In the field, we are operating the Bradco branches as a separate business unit within our five regions. Bradco branches continue to operate as Bradco and customers will continue to do business with the same people.
At the regional staff level, we are creating new region teams that combine the best talent from ABC Supply and the best talent from Bradco. Future optimization strategies for each region and each market will be developed by these new joint ABC Supply/Bradco teams and will primarily be field-up plans, not top-down plans.
We are in no hurry to make changes just for the sake of making changes. Our goal is to create value for all of our stakeholders, which includes new and expanded opportunities for our people, enhanced value for our customers and improved support for our suppliers. Throughout this process, we are trying to minimize any disruption for our customers and our suppliers and to make it as easy as possible for our associates to continue providing the high level of service that customers have come to expect from ABC Supply and Bradco.
RC: How will this affect roofing contractors out there?
Luck: Our goal for roofing contractors is to improve the level of service in every market by taking advantage of the synergies and ultimately creating more value for our customers.
One key thing will not change for our contractor customers, whether they are working with an ABC Supply branch or a Bradco branch; they will still be working with the same people they’ve come to know and trust.
RC: What is the company’s overall strategy going forward - short-term, long-term?
Luck: Our short-term focus is a successful integration of Bradco and ABC Supply that creates and captures the value for our associates, our customers and the company. As a combined company, we need to be sure we continue producing world-class associate and customer engagement scores.
With the Bradco acquisition, we are very close to achieving our strategic goals of reaching 500 locations and $5 billion in sales. We are, therefore, in the process of updating our strategic plans and setting goals for the next five to seven years.
Luck: ABC Supply’s mission is to be the biggest, best and easiest service company distributing select exterior building products. We strive to be recognized as a “people-first” company producing world-class associate engagement, customer engagement and financial results. We believe that Bradco is a great fit with this mission.
For any acquisition to be successful, the values and cultures of the two companies must be compatible. The first thing we looked at when considering this acquisition was whether Bradco would be a good fit with ABC Supply’s core values. I strongly believe that you don’t convince people to accept your core values; they either believe in them or don’t believe in them.
We came to the conclusion that Bradco’s core values were very similar to ABC Supply’s. For example, having respect for the customer and the industry and giving people great opportunities no matter what their backgrounds are. Both companies were founded by entrepreneurs - ABC Supply by Ken and Diane Hendricks and Bradco by Barry Segal - and still have that entrepreneurial spirit. We concluded that, by adding the long-term strategic vision of ABC Supply to these shared values, the Bradco people would embrace the new relationship.
RC: What’s your message for roofing contractors?
Luck: First, on behalf of our owner and co-founder Diane Hendricks and all associates of ABC Supply, I would like to thank our customers for their business and support through the years. Thank you.
Our other message for roofing contractors is fundamentally this … ABC Supply was founded by roofers, Ken and Diane Hendricks. Many people in our company have been associated with this industry for most their lives. Throughout our history, we have remained a privately held, strategic player in the industry, which is now dominated by financial owners looking for exit strategies. We are not controlled by private equity firms or financial houses. We love this industry and have a long-term commitment to it.
Our goal for roofing contractors is to be an extension of their businesses. Our goal is to help all roofing contractors succeed because we know that we can only succeed if our customers succeed. We believe that our acquisition of Bradco gives us increased capability and scale to not only improve service, but also to become more efficient in every level of service, which gives us the ability to give our customers even greater value.
We especially want large commercial contractors to understand how excited we are that we now have the potential to use the combined strengths of ABC Supply and Bradco to better serve this unique segment. There should be no doubt that we are not only committed to maintaining Bradco’s leadership in this segment of the industry, but plan to expand and grow this capability nationwide.
We believe that the combination of Bradco’s and ABC Supply’s strengths will give us the capability to be the lowest-cost provider of services in the industry. That will make us a more efficient and effective partner in our customers’ businesses.
Finally, as I mentioned before, we are restructuring our organization to maximize the opportunities that this acquisition presents for our associates, customers and suppliers. One of our senior officers will lead this initiative and we will devote the necessary resources to ensure its success.
For more information, visit www.abcsupply.com and www.bradcosupply.com.