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Business Combinations and Dispositions | 9 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
Business Combinations and Dispositions | 2. Business Combinations and Dispositions On January 1, 2021, we completed our previously announced all stock merger transaction with BMC Stock Holdings, Inc., a Delaware corporation (“BMC”), pursuant to the Agreement and Plan of Merger, dated as of August 26, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the “Merger Agreement”), by and among Builders FirstSource, Inc., Boston Merger Sub I Inc., a Delaware corporation and direct wholly owned subsidiary of Builders FirstSource, Inc. (“Merger Sub”) and BMC. On the terms and subject to the conditions set forth in the Merger Agreement, on January 1, 2021, Merger Sub merged with and into BMC, with BMC continuing as the surviving corporation and a wholly owned subsidiary of Builders FirstSource, Inc. (the “BMC Merger”). The BMC Merger expands the Company’s geographic reach and value-added offerings. The BMC Merger was accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. Net sales and income before income taxes attributable to BMC were $1.8 billion and $196.9 million, respectively, for the three months ended September 30, 2021. Net sales and income before income taxes attributable to BMC were $5.0 billion and $418.4 million, respectively, for the nine months ended September 30, 2021. Income before income taxes attributable to BMC reflects an increase in depreciation and amortization expense related to the recording of these assets at fair value as of the acquisition date and is also impacted by changes in the business post-acquisition. The consideration transferred was allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess recorded as goodwill. The fair value of acquired intangible assets of $1.5 billion was primarily related to customer relationships. Immediately following the BMC Merger, the Company settled certain assumed long-term debt of $359.8 million using cash on hand. We incurred transaction-related costs of $0 and $17.6 million related to the BMC Merger during the three and nine months ended September 30, 2021, respectively, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. The consideration transferred was determined as the sum of the following: (A) the price per share of the Company’s common stock (“BFS common stock”) of $40.81 (based on the closing price per share of BFS common stock on December 31, 2020), multiplied by each of: (1) the approximately 88.7 million shares of BFS common stock issued to BMC stockholders in the BMC Merger (based on the number of shares of BMC common stock outstanding on December 31, 2020, multiplied by the exchange ratio as set forth in the Merger Agreement); and (2) the approximately 0.9 million shares of BFS common stock issued to holders of outstanding BMC restricted stock awards in connection with the BMC Merger (based on the number of BMC restricted stock awards outstanding as of December 31, 2020 (with performance-based awards vesting at target level of performance), multiplied by the exchange ratio as set forth in the Merger Agreement); plus (B) the fair value attributable to fully vested, outstanding options for BMC common stock held by current BMC employees that were assumed by the Company at the effective time and became options to purchase BFS common stock, with the number of shares and exercise price adjusted by the exchange ratio. The calculation of consideration transferred is as follows (in thousands, except ratios and per share amounts):
Number of BMC common shares outstanding |  | 67,568 |
Exchange ratio for common shares outstanding per Merger Agreement |  | 1.3125 |
Shares of BFS common stock issued for BMC outstanding common stock |  | 88,683 |
Number of BMC stock awards that vested as a result of the BMC Merger |  | 688 |
Exchange ratio for stock awards expected to vest per Merger Agreement |  | 1.3125 |
Shares of BFS common stock issued for BMC vested restricted stock awards |  | 903 |
Price per share of BFS common stock | $ | 40.81 |
Fair value of BFS common stock issued for BMC outstanding common stock and vested equity awards | $ | 3,655,988 |
Fair value of modified BMC fully vested, unexercised options |  | 2,374 |
Total consideration transferred | $ | 3,658,362 |
On May 3, 2021, we acquired certain assets and operations of John’s Lumber and Hardware Co. (“John’s Lumber”) for a purchase price of $24.8 million. Located in Detroit, Michigan, John’s Lumber is a supplier of lumber and sheet goods, windows, doors, millwork, siding, decking, kitchen and bath and installation services to homebuilders, remodel contractors and retail consumers. This acquisition was funded with a combination of cash on hand and borrowings under our 2026 revolving credit facility (the “2026 facility”). On July 1, 2021, we acquired all of the operating affiliates of Cornerstone Building Alliance SW, LLC (“Alliance”) for a purchase price of, $408.9 million, net of cash acquired. Alliance operates in Arizona, primarily serving the greater Phoenix, Tucson, and Prescott Valley metropolitan areas. Alliance manufactures roof trusses and distributes lumber and related products to residential homebuilders and commercial contractors. This acquisition was funded with a combination of cash on hand and borrowings under our 2026 facility. On September 1, 2021, we acquired certain assets and operations of CTF Holdings Limited Partnership (“CTF”) for a purchase price of $182.5 million, net of cash acquired. Prior to the acquisition, CTF was the largest independent truss manufacturer in California, supplying framing contractors and builders in both the single and multifamily markets. This acquisition was funded with cash on hand. These three transactions were accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The fair value of acquired intangible assets of $176.7 million was primarily related to customer relationships. Customer relationships associated with John’s Lumber, Alliance, and CTF were $2.6 million, $108.2 million, and $52.8 million, respectively. We recorded goodwill for John’s Lumber, Alliance, and CTF of $8.4 million, $184.0 million, $98.1 million, respectively. On August 17, 2021, we acquired certain assets and operations of WTS Paradigm, LLC (“Paradigm”), a software solutions and services provider for the building products industry for a purchase price of $449.4 million, net of cash acquired. Located in Middleton, Wisconsin, Paradigm enhances the Company’s digital capabilities and aligns with our broader vision to provide digital solutions that improve efficiency and solve pain points in the homebuilding process. This acquisition was funded with cash on hand. This transaction was accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. The allocation of the consideration transferred for the Paradigm acquisition is preliminary and based upon all information available to the Company at the time of filing, and is subject to change. The Company is in the process of finalizing its valuation of the identified acquired intangible assets, and therefore, the allocation of the consideration transferred is not complete. The fair value assigned may be adjusted during the measurement period. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The fair value of acquired intangible assets of $124.9 million was primarily related to developed technology of $97.2 million. We recorded goodwill of $324.1 million for this transaction. Pro forma results of operations as well as net sales and income attributable to the acquisitions discussed above are not presented as these acquisitions did not have a material impact on our results of operations. We incurred $6.5 million and $7.2 million of acquisition related costs attributable to these acquisitions in the three and nine months ended September 30, 2021, respectively, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. On July 26, 2021, we completed the sale of our standalone Eastern U.S. gypsum distribution operations (“Gypsum Divestiture”) for total cash proceeds of $76.2 million, resulting in a gain on sale totaling $26.3 million. The disposition does not meet the criteria for discontinued operations classification, thus the results of operations for this divestiture are reported within the Company’s one reportable segment, and the gain on sale is included within selling, general and administrative expenses in the condensed consolidated statement of operations for the three and nine months ended September 30, 2021. The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for the BMC Merger and other acquisitions (in thousands):
|  | BMC Merger |  |  | All Other Acquisitions |  |  | Total |
Cash and cash equivalents |  | $ | 167,490 |  |  | $ | 34,727 |  |  | $ | 202,217 |
Accounts receivable |  |  | 469,204 |  |  |  | 94,316 |  |  |  | 563,520 |
Other receivables |  |  | 36,704 |  |  |  | 2,895 |  |  |  | 39,599 |
Inventories |  |  | 460,146 |  |  |  | 67,978 |  |  |  | 528,124 |
Other current assets |  |  | 32,891 |  |  |  | 3,099 |  |  |  | 35,990 |
Property, plant and equipment |  |  | 555,170 |  |  |  | 33,120 |  |  |  | 588,290 |
Operating lease right-of-use assets |  |  | 179,133 |  |  |  | 21,277 |  |  |  | 200,410 |
Goodwill |  |  | 1,751,604 |  |  |  | 614,609 |  |  |  | 2,366,213 |
Intangible assets |  |  | 1,470,000 |  |  |  | 301,550 |  |  |  | 1,771,550 |
Other assets |  |  | 6,244 |  |  |  | 619 |  |  |  | 6,863 |
Total assets |  | $ | 5,128,586 |  |  | $ | 1,174,190 |  |  | $ | 6,302,776 |
Accounts payable |  | $ | 279,980 |  |  | $ | 14,726 |  |  | $ | 294,706 |
Accrued liabilities |  |  | 246,119 |  |  |  | 35,401 |  |  |  | 281,520 |
Operating lease liabilities |  |  | 180,650 |  |  |  | 21,277 |  |  |  | 201,927 |
Long-term debt |  |  | 366,797 |  |  |  | 42 |  |  |  | 366,839 |
Deferred income taxes |  |  | 349,971 |  |  |  | 1,881 |  |  |  | 351,852 |
Other long-term liabilities |  |  | 46,707 |  |  |  | 535 |  |  |  | 47,242 |
Total liabilities |  | $ | 1,470,224 |  |  | $ | 73,862 |  |  | $ | 1,544,086 |
Total consideration transferred |  | $ | 3,658,362 |  |  | $ | 1,100,328 |  |  | $ | 4,758,690 |
The following table reflects the pro forma operating results for the Company which gives effect to the BMC Merger as if it had occurred on January 1, 2020 (in thousands). The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of future results. The pro forma financial information includes the historical results of the Company and BMC adjusted for certain items, which are described below, and does not include the effects of any synergies or cost reduction initiatives related to the BMC Merger.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net sales |  | $ | 5,508,590 |  |  | $ | 3,385,793 |  |  | $ | 15,259,047 |  |  | $ | 9,019,232 |
Net income |  |  | 642,048 |  |  |  | 76,810 |  |  |  | 1,401,823 |  |  |  | 63,613 |
Pro forma net income (loss) reflects the following adjustments:
| • | Property, plant and equipment and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2020, and are depreciated or amortized over their estimated useful lives from that date.
| • | Transaction-related expenses of $57.7 million are assumed to have occurred on January 1, 2020, and are presented as an expense during the nine months ended September 30, 2020.
| • | Interest expense related to certain assumed long-term debt settled in connection with the BMC Merger has been adjusted.
| • | Cost of sales related to the sell-through of inventory stepped up in value in connection with the BMC Merger has been adjusted and is presented as cost of sales during the nine months ended September 30, 2020.

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