Insight

Building Products Distribution Industry Update

Read more about M&A activity and trends in this sector

Robert White

Robert White

Managing Director, KPMG Corporate Finance LLC

+1 443-946-9713

Residential Building Product Distribution

Sector Highlights

  • The residential building products distribution industry is segmented into several subsectors. This report will focus on exterior products, interior products, lumber and building materials (“LBM”), and hardscape / landscape suppliers.
  • Primarily serving pro dealer contractors in the new construction and remodeling markets, these distributors provide a critical link between suppliers and a highly fragmented customer base.
  • Given the regional nature of the markets, the distributor base has historically been fragmented as well.
  • The past 2 decades have seen considerable consolidation, leading to well-capitalized super-regional and national players in each subsector.
  • These larger firms are a combination of private equity backed consolidators, public companies, and privately held entities, creating an interesting dynamic for independents looking to be acquired and a ready exit strategy for smaller consolidators.
  • While the sector experienced unprecedented activity post-COVID, rapid inflation in the U.S. economy drove the Federal Reserve to impose significant interest rate hikes, resulting in the highest rate in more than twenty years.
  • Mortgage rates have more than doubled over that time, dramatically increasing the cost of ownership for homebuyers.
  • Economic concerns have resulted in fewer housing starts, which, combined with a hesitancy for existing homeowners to swap a low rate for the current higher rates, have reduced housing inventory and resulted in stubbornly high housing prices.
  • Despite the current disruption faced by the housing markets, there remains systemic issues with housing shortages in the U.S. Household formations have outpaced housing starts, resulting in all-time lows in rental and homeowner vacancy rates.
  • The prevailing sector dynamics suggests longer-term tailwinds for housing construction and remodeling.
  • We anticipate continued M&A as larger consolidators and platforms pursue continued growth in core areas of focus and / or seek to enter adjacencies (ex., HVAC, expansion into commercial building).

Key Themes

High Interest Rates Have Led to Market Disruption

Inventory Shortages Have Kept Prices Inflated

The Market is Stabilizing


Favorable Long Term Sector Dynamics

Continued M&A Momentum


Exterior

  • Roofing
  • Siding and Trim
  • Windows & Doors
  • Misc
LBM
  • Lumber & Engineered Wood
  • Trusses, Beams and Framing
  • Windows & Doors
  • Misc

Interior

  • Wallboard
  • Steel Studs & Insulation
  • Ceiling & Acoustical Tile
  • Misc

Hardscape/Landscape

  • Outdoor Living
  • Patio, Pavers, Driveway
  • Irrigation & Lighting
  • Misc


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