ProBuild builds on its success

Tech Center firm plugs away, even in a tight market

By David Milstead, Rocky Mountain News (Contact)

Saturday, March 29, 2008

Photos By Matt Mcclain / The Rocky

Mike Gutierrez throws metal banding around a load of lumber on a truck at ProBuild facility in Littleton.

Lloyd Kelley works on loading a delivery of lumber at a yard owned by ProBuild in Littleton. Since establishing Denver as its headquarters last May, ProBuild has acquired nine companies.

Paul Hylbert moved headquarters to Denver to get a new start.

There are thousands of pieces of building materials in the typical home. It seems there are nearly as many parts to ProBuild.

The Denver-based company is the product of more than 120 acquisitions of lumberyards and other building-products companies. And even though its main customers - home builders - are going through their toughest period in decades, ProBuild keeps buying smaller companies.

It's an aggressive plan for a company that didn't exist a little more than two years ago. Devonshire Investors, a private-equity concern owned by the founders and employees of Fidelity Investments, formed ProBuild as a holding company in early 2006.

Its two legacy businesses were the South Plainfield, N.J.-based Strober Organization, which Devonshire took private in 1997, and Redmond, Wash.-based Lanoga Corp. It then added Tulsa, Okla.-based Hope Lumber in July 2006.

Devonshire rolled up all three businesses and devised the ProBuild name for national branding purposes. When it came time to pick a headquarters for the new company, Denver won out over Dallas and Chicago.

"(Fidelity Chairman) Ned Johnson felt very strongly we needed a new headquarters - none of the legacy headquarters would be right," said Paul Hylbert, ProBuild's CEO. "We needed a new start.

"Texas has much better incentives, but this is a good place to attract people, and the airport is an excellent airport," Hylbert said. (When Hylbert and three other executives scheduled summertime flights into Chicago to consider the location, Hylbert was the only one whose flight actually arrived on time without being diverted to another airport.)

So now an out-of-the-way office building in the Denver Tech Center houses a company with 160 employees - up from three a year ago - and more than $5 billion in annual sales. It ranks No. 45 on Forbes magazine's list of America's biggest private companies, and ProBuild believes it's the nation's largest professional building materials supplier.

Company's brisk pace

It intends to retain that crown, continuing its brisk pace of acquisitions. ProBuild believes it has just a 3 percent share of a $185 billion industry.

"It's been much more logical to find good companies in markets we want to enter, rather than open green-field companies, creating another competitor, and taking the years it takes to learn the customers and the markets," said Hylbert.

The plan behind the aggressive buying is not cost-cutting. Instead, ProBuild sees home building becoming a national industry, moving away from its local and regional roots.

Since establishing Denver as its headquarters last May, ProBuild has acquired nine companies. The company won't disclose terms of its deals, nor will it say how much it's spent in total.

One of the biggest, however, is the purchase of a piece of HD Supply, the contracting business sold off by Home Depot last year for $8.5 billion to three private-equity firms: Bain Capital, The Carlyle Group, and Clayton, Dubilier & Rice.

HD Supply kept the businesses that sold huge infrastructure supplies to water and electrical utilities, as well as the electrical and plumbing operations. It sold its lumber-based lines of business - about $1 billion in revenue of its $10 billion to $12 billion - to ProBuild.

IPO seems unlikely

When Home Depot decided to sell HD Supply, the deal benefited ProBuild in another way: "They were a very aggressive acquire," Hylbert said. "So to have them out of the market is very important to us."

That may make ProBuild's acquisitions cheaper, particularly now. The industry, Hylbert acknowledges, "is not in good health right now," with the ProBuild's revenues dipping 18 percent in 2007 from 2006 levels.

That means the company's top line is dependent on more acquisitions. Hylbert served as a top executive at Lanoga while it made 80 acquisitions in 15 years, and he says other ProBuild leaders have significant experience "acquiring companies, and most importantly, integrating them once they've been acquired."

The business of creating a well-oiled enterprise out of plenty of disparate pieces can be challenging. But Roger Ramsey, a veteran executive from the highly acquisitive Browning-Ferris Industries, said ProBuild's pace of buying "is not all that challenging for someone who's been doing it for a while and knows what they're doing."

"They'd know what works and doesn't work, and they wouldn't do what doesn't," said Ramsey, who serves as CEO of a small biotech company called MedServe.

What isn't likely, however, is a ProBuild initial public offering, which would turn the company into one of Colorado's largest, most prominent publicly traded companies.

"Fidelity is unlike the private-equity companies with a five- to eight-year timeline, looking to exit the business," Hylbert said. "This is a long-term business for Fidelity, and I think they're planning to grow the business and own it forever."