The key message for Beacon is that the company sells into a nondiscretionary, repair & remodel‐driven
market. To put it simply, when your roof leaks, you fix it. We estimate that ~80% of sales are
cyclical factors driving results year to year, there are fluctuations based on weather conditions, with
years of large hurricanes and/or hailstorms affecting results. Also worth mentioned is that the roofing
distribution industry has consolidated significantly in recent years, with the market now controlled ~55%
by the top three players: Beacon, ABC Supply, and SRS Distribution.
While the company has been public since 2004, the operational history of the company has been mixed.
For many years margins hovered in the low‐ to mid‐single digits, and returns on capital were poor.
Following a transformational merger with Allied Building Products in 2018, private equity firm CD&R
became a significant shareholder in BECN via both common and preferred equity and gained board
seats. Under CD&R’s leadership, the company brought in a new management team, led by current CEO
Julian Francis (fmr Owens Corning) and former CFO Frank Lonegro (fmr CSX). The new team
transformed results with improved revenue growth and margins. Additional initiatives such as private
label, e‐commerce, and Greenfield branches have continued to boost returns. The company has set out
impressive sales, margin and returns targets under its “Vision 2025” initiative, which we believe they are
on track to meet or beat.
In addition to operational improvements, the management team has been proactive with its balance
sheet. Besides deploying capital for internal initiatives and M&A‐led growth, last year the company
repurchased CD&R’s entire preferred stake in the company. And finally, as of January 2024 CD&R sold
the remainder of its common shares into the market, fully removing the “PE overhang.”
Despite these positive developments, BECN shares have not re‐rated. In fact, the company currently
trades at a discount to its historical EV/EBITDA multiple, making the shares highly attractive in our view.
BECN trades at a significant discount not just to more repair/remodel‐focused specialty distributors but
also to more cyclical distributors with significant exposure to swings in new construction spending:
We believe this opportunity in Beacon exists for two main reasons. First, while 2023 did not see
significant hurricane activity, it was a very strong year for hailstorms and with it, storm‐related roofing
demand. Investors therefore are highly (in our opinion, too highly) fixated on “tough comps” for 2024.
Second, CD&R led three secondary offerings in BECN shares since August 2023, perhaps leading to some
shareholder churn as the shares hit the market.
A development in March us even more excited about Beacon. On March 28, Home
Depot announced an acquisition of PE‐owned SRS Distribution for $18.25bln. SRS is the closest comp to
Beacon, with the vast majority of its profits coming from roofing product distribution. This is Home
Depot’s largest acquisition to date and the purchase price equates to over 16x EBITDA. In other words,
BECN’s closest peer was taken private for almost double BECN’s current trading multiple. We believe
Home Depot plans to run SRS independently and with its own supply chains for the foreseeable future.
The transaction highlights the desirability of the close relationships these specialty distributors have
with the Pro channel. It would not be surprising to us to see strategic interest in BECN going forward.
