Builders FirstSource, Inc. (NASDAQ:BLDR), a building product supplier, has placed a huge bet on the recovery of the housing segment in the form of an acquisition of the fellow building material supplier ProBuild Holdings LLC for $1.63 billion in cash. If the housing segment really recovers to the extent expected, the company hopes to capitalize on it big time. This transaction is expected to be completed by the end of 2015.
Devonshire Investors, a private equity firm associated with Fidelity Investment’s parent FMR LLC, is the owner of ProBuild, which operates retail stores, Millwork shops, and lumber yards, also one of the largest building material distributors. Builders FirstSource, Inc. (NASDAQ:BLDR) is a manufacturer of structural building products for new residential constructions.
In 2014, ProBuild had revenue of $4.5 billion and after the acquisition; the new entity is expected to have combined revenue of $6.1 billion. By 2017, this new entity may generate $100 million to $200 million in annual cost savings. The cost of $1.63 billion is expected to be paid in 3 ways, the first of which would be existing $350 million senior secured notes, followed by $295 million of a new $800 million ABL facility and then a new $550 million Term Loan B. Builders FirstSource, Inc. (NASDAQ:BLDR) may also offer new senior unsecured notes of $750 million and new equity of $100 million, before the deal is finished.
The market showered only love, evident from the 67.68% jump Builders FirstSource, Inc. (NASDAQ:BLDR) had in a single session. The technical state is naturally strong. The long term chart shows this jump at the end of a huge 6 year old sideways phase. The width of the range is about $8 and adding that to the breakout level of $10 gives us a long term target level of $18, shown on the chart attached.
