Expands GMS’s leadership position in North
America through combination of the largest U.S. and Canadian
wallboard distributors
- Provides entry and new growth
opportunities into highly attractive, fragmented Canadian
market
- Combines two experienced and
well-respected management teams with shared commitment to customer
service and operational excellence
- The combination increases GMS’s
Adjusted earnings per share by approximately 25% and Adjusted
EBITDA margin by over 100 basis points on a pro forma basis
- Expect to realize at least $10 million
in cost synergies within first full year following the close of the
transaction
- Conference call scheduled for April 5,
2018 at 8:00 a.m., Eastern Time
GMS Inc. (NYSE:GMS), a leading North American distributor of
wallboard and suspended ceilings systems, announced today a
definitive agreement to acquire 100% of the equity interests of WSB
Titan (“Titan”) for total consideration of approximately $627
million (C$800 million). Headquartered in Toronto, Titan is
Canada’s largest gypsum specialty dealer (“GSD”) serving the
residential, commercial, and institutional markets with key
products including wallboard, insulation, lumber, roofing, steel
framing, and other complementary building products. Titan was
founded in 2009 through the partnership of Watson Building Supplies
and Shoemaker Drywall Supplies, two trusted wallboard distributors
with roots dating back to the 1970s, and expanded the platform in
2015 through the acquisition of Slegg Building Materials, a
family-run wallboard and building supplies distributor formed in
1947.
Mike Callahan, President and CEO of GMS, commented, “The
acquisition of Titan further extends our leadership position as the
largest wallboard distributor in North America with significant
scale advantages and a well-balanced portfolio built for growth.
The combination also provides us with a market leading position in
Canada and the foundation to support future opportunities in this
highly fragmented market while creating opportunities to share best
practices across our operations. I have been extremely impressed
with the quality of Titan’s management team, the excellence of
their operations, and their steadfast commitment to service
quality, which has resulted in market leading margins and a solid
track record of organic and inorganic growth. With a strong
cultural fit and shared focus, we are confident this combination
will be beneficial to both companies.”
Doug Skrepnek, CEO of Titan, added, “Like GMS, we have built our
business through a differentiated service model that fosters
loyalty and long-term relationships with top-tier customers and
suppliers. This shared commitment, coupled with the opportunity to
join forces with another industry leader in North America, makes
this combination extremely compelling for Titan’s stakeholders.
While we have individual strengths that we plan to leverage across
the combined platform, having shared values and similar cultures
makes this a natural combination. On behalf of everyone at Titan,
we are looking forward to joining the GMS team.”
Strategic Rationale
GMS believes that the acquisition of Titan will result in
several strategic and financial benefits, including:
- Expansion of Scale and Footprint in
North America: Adding the largest Canadian wallboard
distributor to GMS’s existing U.S. footprint creates a
market-leading North American GSD platform with over 240 locations
across 42 U.S. states and five Canadian provinces.
- Geographic Expansion into Attractive
Market: The acquisition of Titan provides an entry point into
the highly attractive, fragmented Canadian GSD market. As an
attractive acquirer in Canada with a proven track record of organic
and inorganic growth, having completed five transactions and opened
four greenfields since 2009, the addition of Titan is expected to
allow GMS to participate in further M&A and greenfield
opportunities throughout the Canadian GSD market.
- Well-Balanced Platform for
Growth: The combination will diversify GMS’s product offerings
and create significant opportunities for product expansion in both
the United States and Canada while enhancing the Company’s ability
to serve its customers. In addition, acquiring Titan positions GMS
as a key North American distributor of insulation, while further
accelerating growth across the combined company’s product
portfolio.
- Complementary Cultures &
Commitment to Customer Service: Titan serves as a value-added
partner to a broad base of over 14,500 customers, including some of
the largest wallboard interior finishing installers in Canada.
Titan’s experienced management team has earned its reputation for
operational excellence and service quality, which underpin Titan’s
strong culture and are shared by GMS.
- Expected to be Immediately Accretive
to Adjusted Earnings per Share and Adjusted EBITDA Margin:
Titan’s scale, market position, operating platform and value-added
services have driven market leading Adjusted EBITDA margins of
14.7% for the twelve months ended January 31, 2018. We estimate
that the combination would have increased GMS’s Adjusted earnings
per share by approximately 25% and Adjusted EBITDA margin by over
100 basis points on a pro forma basis for the twelve months ended
January 31, 2018.
- Meaningful Cost Synergies: GMS
expects to capture cost synergies of at least $10 million within
the first full year following the close of the transaction, driven
largely by purchase synergies associated with the combined
company’s enhanced scale. These estimates do not include any
expected benefits associated with the sharing of best practices or
product expansion opportunities.
Management
Mike Callahan will continue to serve as President and CEO of the
combined company, which will remain headquartered in Tucker,
Georgia. Doug Skrepnek will become President of GMS Canada,
reporting to Mr. Callahan.
Transaction Details
Under the terms of the agreement, GMS will acquire 100% of the
equity interests of Titan for approximately $627 million (C$800
million) from Titan’s current management and TorQuest Partners. For
the twelve months ended January 31, 2018, Titan recorded revenues
of approximately $459 million and Adjusted EBITDA of approximately
$68 million resulting in a transaction multiple of less than 8.0x
Adjusted EBITDA, including the impact of estimated cost
synergies.
GMS has secured fully-committed debt financing for the
transaction and per the terms of the agreement, existing Titan
management, which is committed to leading the combined company’s
Canadian business going forward, will roll over $35 million of
their current ownership position into GMS stock. GMS remains
focused on maintaining a prudent capital structure and a strong
financial position with sufficient flexibility to fund ongoing
business operations and acquisitions. The transaction is expected
to close late in the second calendar quarter of 2018 and is subject
to the expiration or termination of the applicable waiting periods
under the Canadian Competition Act, as well as other customary
closing conditions.
Barclays Capital Inc. is serving as GMS’s exclusive financial
advisor, with Jefferies LLC acting as Titan’s exclusive financial
advisor. Fried, Frank, Harris, Shriver & Jacobson LLP is
serving as lead legal advisor. Barclays Bank PLC, Credit Suisse AG
and Credit Suisse Securities (USA) LLC are providing the financing
as joint lead bookrunners.
Conference Call and Webcast
GMS will host a conference call and webcast to discuss the
acquisition at 8:00 a.m., Eastern Time, on April 5, 2018.
Investors who wish to participate in the call should dial
800-289-0438 (domestic) or 323-794-2423 (international) at least 5
minutes prior to the start of the call. The live webcast will be
available on the Investors section of the Company’s website at
www.gms.com. There will be a slide presentation of the results
available on that page of the website as well. Replays of the
call will be available through May 5, 2018 and can be accessed at
844-512-2921 (domestic) or 412-317-6671 (international) and
entering the pass code 1121351.
About GMS Inc.
Founded in 1971, GMS operates a network of more than 210
distribution centers across the United States. GMS’s extensive
product offering of wallboard, suspended ceilings systems, or
ceilings, and complementary interior construction products is
designed to provide a comprehensive one-stop-shop for our core
customer, the interior contractor who installs these products in
commercial and residential buildings.
Use of Non-GAAP Financial Measures
GMS reports its financial results in accordance with GAAP.
However, it presents Adjusted earnings per share, Adjusted EBITDA
and Adjusted EBITDA margin, which are not recognized financial
measures under GAAP. GMS believes that Adjusted earnings per share,
Adjusted EBITDA and Adjusted EBITDA margin assist investors and
analysts in comparing its operating performance across reporting
periods on a consistent basis by excluding items that the Company
does not believe are indicative of its core operating performance.
The Company’s management believes Adjusted earnings per share,
Adjusted EBITDA and Adjusted EBITDA margin are helpful in
highlighting trends in its operating results, while other measures
can differ significantly depending on long-term strategic decisions
regarding capital structure, the tax jurisdictions in which the
Company operates and capital investments. In addition, the Company
utilizes Adjusted EBITDA in certain calculations under its senior
secured asset based revolving credit facility and its senior
secured first lien term loan facility.
You are encouraged to evaluate each adjustment and the reasons
GMS considers it appropriate for supplemental analysis. In
addition, in evaluating Adjusted EBITDA, you should be aware that
in the future, the Company may incur expenses similar to the
adjustments in the presentation of Adjusted EBITDA. The Company’s
presentation of Adjusted EBITDA should not be construed as an
inference that its future results will be unaffected by unusual or
non-recurring items. In addition, Adjusted EBITDA may not be
comparable to similarly titled measures used by other companies in
GMS’s industry or across different industries. The financial
information of Titan provided in this press release was provided to
the Company by Titan.
Forward-Looking Statements and Information:
This press release includes “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. You can generally identify forward-looking statements by the
Company’s use of forward-looking terminology such as “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “might,” “plan,” “potential,” “predict,” “seek,” or
“should,” or the negative thereof or other variations thereon or
comparable terminology. In particular, statements about the markets
in which GMS or Titan operates, product expansion opportunities,
potential acquisitions or greenfield opportunities, the combination
of best practices, statements about their expectations, beliefs,
plans, strategies, objectives, prospects, assumptions or future
events or performance, statements related to non-GAAP financial
measures such as Adjusted earnings per share, Adjusted EBITDA and
Adjusted EBITDA margins, including accretion thereto, and
statements regarding expected cost synergies, the expected
transaction multiple, and the expected timing of the transaction
contained in this press release are forward-looking statements. The
Company has based these forward-looking statements on its current
expectations, assumptions, estimates and projections. While the
Company believes these expectations, assumptions, estimates and
projections are reasonable, such forward-looking statements are
only predictions and involve known and unknown risks and
uncertainties, many of which are beyond its control.
Forward-looking statements involve risks and uncertainties,
including, but not limited to, economic, competitive, governmental
and technological factors outside of the Company’s control, that
may cause its business, strategy or actual results to differ
materially from the forward-looking statements. These risks and
uncertainties may include, among other things: changes in the
prices, supply, and/or demand for products which GMS or Titan
distributes; general economic and business conditions in the United
States and Canada; the activities of competitors; changes in
significant operating expenses; changes in the availability of
capital and interest rates; adverse weather patterns or conditions;
acts of cyber intrusion; variations in the performance of the
financial markets, including the credit markets; and other factors
described in the “Risk Factors” section in the Company’s Annual
Report on Form 10-K for the fiscal year ended April 30,
2017, and in its other periodic reports filed with the SEC. In
addition, numerous factors could cause actual results with respect
to the proposed transaction to differ materially from those in the
forward-looking statements, including without limitation, the
possibility that the expected synergies and cost savings and
financial impacts from the proposed transaction will not be
realized, or will not be realized within the expected time period;
the risk that the GMS and Titan businesses will not be integrated
successfully; the ability to obtain governmental approvals of the
proposed transaction on the proposed terms and schedule
contemplated by the parties; disruption from the proposed
transaction making it more difficult to maintain business and
operational relationships and to accomplish other GMS objectives;
the risk of customer attrition; the possibility that the proposed
transaction does not close, including, but not limited to, failure
to satisfy the closing conditions; and the ability to obtain the
debt financing contemplated to fund the cash purchase price for the
proposed transaction and the terms of such financing. In addition,
the statements in this release are made as of April 5, 2018. The
Company undertakes no obligation to update any of the forward
looking statements made herein, whether as a result of new
information, future events, changes in expectation or otherwise.
These forward-looking statements should not be relied upon as
representing the Company’s views as of any date subsequent to April
5, 2018.
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