Builders FirstSource to buy rival BMC in bet on U.S. housing market recovery

(Reuters) - U.S. residential building materials maker Builders FirstSource Inc BLDR.O on Thursday agreed to buy BMC Stock Holdings Inc BMCH.O in an all-stock deal that values the smaller rival at about $2.5 billion.

Shares of BMC closed 22.4% higher at $39.45, while Builders FirstSource’s stock rose 8.4% to close at $30.24.

The deal comes as the U.S. housing market stages a strong recovery from the crippling fallout of coronavirus-induced lockdowns, helped by record-low mortgage rates and a shift to suburban areas.

U.S. homebuilding accelerated by about 23% in July, the most in nearly four years, up from a 17.3% rise in June, data from the Commerce Department showed last week.

The companies, which manufacture floor and roof trusses, wall panels, stairs, windows and doors, will have a combined market capitalization of $5.44 billion based on Wednesday’s close.

The companies had long considered a possible combination in order to become one of the largest players in an otherwise fragmented industry, people familiar with the matter said.

In addition to the sector’s recent strength, the planned retirement of Builders FirstSource’s chief executive officer, Chad Crow, created the right conditions for the companies to come together now, according to the sources.

BMC’s current CEO, Dave Flitman, will lead the combined firm, the companies said.

BMC investors will receive 1.3125 shares of Builders FirstSource stock for each BMC share held, representing a premium of about 14% to BMC’s last close.

Builders FirstSource shareholders will own about 57% and BMC 43% of the new company, with the deal expected to close in late-2020 or early 2021, the companies said.Rothschild & Co and Morgan Stanley advised Builders FirstSource. Moelis & Company advised BMC.

Reporting by Ankit Ajmera in Bengaluru and Rebecca Spalding in New York; Editing by Sriraj Kalluvila and Matthew Lewis