Coffee Conversations - Acquisition Frenzy! Where is the Industry Going? - PODCAST TRANSCRIPT

Editor's note: The following is the transcript of a live interview with Jason Stanley of IB Roof Systems, Reid Ribble previously of National Roofing Contractors Association, Brian Whelan of Roof Resources, Ron Harriman of Benchmark and Ed Krusek of Hunter Panels. You can read the interview below, listen to the podcast or watch the recording.

Intro: Welcome to Coffee Conversations from Roofers Coffee Shop. My name is Heidi Ellsworth and we are here today to talk about what everyone has been talking about for the last year and longer, and that is acquisitions. As an industry, we are seeing it on all levels across the board, so we brought a panel of some of the top thought leaders in the industry to talk about what's happening, not just today, but over the last 30 plus years. Before we get started, let's do some housekeeping. This is being recorded and it will be available on demand within 24 hours. We ask that you share this. This is the kind of information that is so important for our industry, so please share this out, let people know about it and you can find that very easily on Roofers Coffee Shop, under RLW Coffee Conversations.

I want to say a very special thank you to IB Roof Systems. IB not only is sponsoring this Coffee Conversations, but came up with the idea of, hey, let's talk about acquisitions on a bigger level. And so, we really want to find out what's going on with manufacturing, distribution, contractors, you name it, roof consultants. There's all kinds of things happening right now that everyone should be aware of. So let's go ahead and get started with our introductions. So first of all, I would like to introduce Jason Stanley. First of all, Jason, thank you so much for sponsoring this with IB Roof Systems and as always, thank you for the great idea. Can you introduce yourself and tell us a little bit about your company?

Jason Stanley: Certainly. Jason Stanley, CEO of IB Roof Systems. I'm certainly proud and excited to be here with a wonderful group of thought leaders in this industry. This is a true honor to be on the same podcast with so many great people to talk about a very hot topic, that's not only near and dear to my heart with the industry, but has impacted our company in just the last few months with the acquisition of IB Roof Systems by Kingspan.

Heidi Ellsworth: Yeah. Yeah, I mean there is a lot going on. You are on the front line. Jason. And I would also like to introduce Reid Ribble. Reid, thank you so much for coming back. You are a regular on Coffee Conversations. We love having you. If you could introduce yourself and tell us a little bit about what you're doing.

Reid Ribble: Thanks, Heidi. It's great to be with everybody and I'm very much looking forward to this conversation. My name is Reid Ribble. For 35 years, I had my own roofing contracting company in Wisconsin. I then spent six years in the US House of Representatives and another five and a half or six years or so as CEO of the National Roofing Contractors Association. And I'm now retired, so I've got more time to visit with you, Heidi. So thanks for having me today.

Heidi Ellsworth: I feel like we're very lucky for that and for everything you've done, thank you so much. And talk about perspective, this is what we're so excited about with all of our panelists, is this perspective across many different roles that you've had and a couple of years. So I am also so honored to introduce Brian Whelan, who's the first time on Coffee Conversations. Brian, welcome and thank you for being here. Can you introduce yourself and tell us what you're up to?

Brian Whelan: Sure. Thanks Heidi, and thanks for the invitation as well. I'm very pleased to join this group and have this conversation about acquisitions. So I was involved with an international construction product manufacturer for 40 years, retired and started up my own kind of consulting company for the last three years called Roof Resources. And I've been involved with a lot of acquisition opportunities involved with an acquisition kind of team that was built. So it looked at things like what are the acquisition opportunities that are out there? Then we involved with the integration teams that were involved in the due diligence of it.

And I've been on both sides of the table as it relates to acquisitions. One side, I was actually in a company that was acquired and then I was on the other side of the table where we've acquired a number of companies. So I have, if you will, a couple of different lenses of what it means when you're being acquired or you're acquiring a company. So thanks again for the invitation today.

Heidi Ellsworth: I love it. I love it. Thank you so much. And Ron Harimann, thank you so much for being here, returning to Coffee Conversations. Please introduce yourself and let us know what you're doing.

Ron Harriman: Yeah, well, I'm glad to be here. I'm always honored to be a part of your podcast, Heidi. So I think Roofers Coffee Shop does a great service to the entire industry, and I think everyone on this panel's objective today is to help industry members get better, to be better prepared for acquisition, regardless of which side of the acquisition or potential acquisition you might be on. So as you indicated, I spent my career over 40 years in the roofing industry, about nine years as a roof contractor and then, a little over 30 years as a consultant with Benchmark. So we got to see, call it mergers and acquisitions from kind of a micro level. We are actually part of an employee buyout. We bought ourselves back in the beginning.

And so, that was an interesting transaction. We also then purchased a pavement consulting firm to help us diversify our product and service mix from just roof consulting to also pavement consulting, which we could have a seminar on that. It's been a very successful endeavor, but as a consultant, we really kept our eyeballs on manufacturers that were going through M&A activity contractors. The concept has been around for a number of years and we've seen the good, the bad and the ugly of that. And certainly I think there's opportunity to strengthen the roofing industry by being prepared well. So I might lean in more with my ear today than anything, listening to what people are feeling, looking forward to their questions and what the other panelists have to say.

Heidi Ellsworth: That's great, Ron, thank you so much. I am so excited about this conversation today. And last but certainly not the least actually, someone who I've worked with in my career and I'm so excited to have is Ed Krusec. Ed, welcome to Coffee Conversations.

Ed Krusec: Thank you. Heidi, and thank you Jason for-

Heidi Ellsworth: Tell us what's going on with you?

Ed Krusec: Yeah, so I am Ed Krusec. I'm the director of sales for OEM products at Hunter Panels. I've been in the roofing industry for 37 years. Prior to that, I worked for Skidmore Owings & Merrill, in Chicago, architectural firm and have had a number of different roles here, have gone through some acquisitions in my time, my 37 years in the roofing industry. So well aware of it and excited to be here. And like Ron mentioned, I'm excited to hear some of the questions and concerns and thoughts from those that are listening in.

Heidi Ellsworth: That's perfect, and I didn't mention earlier the chat is open. Of course, it's Coffee Conversations. We need to have our conversations. So please, in the chat, I see Joe is already ... hello, Joe. Good morning. He has already introduced himself and said hello in the chat, please let us know who you are, where you're from, what kind of company you're with. We would love to hear from you. And then throughout this conversation, please ask questions, make comments. You can do a couple little emoji, with hearts, whatever you want to do. We're excited to have this be a conversation across the board. So we are going to start today with really looking at the history.

Where are we? I have to say I have been in my career, yeah, not only acquired, but also on the other side, helping to bring acquired companies in, while ... and I were working together, Carlyle, we went through several acquisitions. I've also been in the companies being acquired. So there is a lot of history over the last 30 years plus in the roofing industry. So we're going to start and we're going to go around and have everybody just give us some of their perceptions on what we're seeing with the cycles of acquisition. So Jason, let's start with you. What have you seen in your career when it comes to the ups and downs of acquisitions?

Jason Stanley: Well, Heidi, this has been going on forever in our industry. It's always been a part of our industry, whether it was a roll up or acquisitions on the contractor side, whether manufacturers we're looking to vertically integrate, this has been happening for a long time, but it seems like the pace has really picked up in the last ... it seems like the last five years to where if you look around, I think about 50% of the manufacturers are now owned by two French companies, two Swiss companies and now an Irish company that's come in and purchased IB Roof Systems and other businesses here. So it seems to be this hyper consolidation that seems to be happening on not only the manufacturing side, but the distribution side and now contractors as well. It's the speed and pace just seems to be higher than we've ever seen before.

Heidi Ellsworth: Yeah, it really is. Ron, what have you seen in your career and also in the roof consulting space?

Ron Harriman: Well, I think if you think of specifically the roof consulting space, the average roof consultant ... I don't know, it's been a long time since I've seen the study on it, but at one time, I recall that the average roof consultant had less than 10 employees, probably more commonly even less than five employees. So it's an industry that is for the most part, very small companies. And so, I think one of the things we see when it comes to ... why would a consulting firm even be attracted from an acquisition standpoint, it has a lot to do with customer, the cash flow, the finances. But maybe the introduction, the conduit into a greater marketplace. But certainly it can lead to increased capabilities, increased coverage, increased services. So I think there's that opportunity as a consultant as a firm to consider it or to be prepared for it.

Whether it would go through or not. But then likewise, as a consultant is considering contractors to work with and manufacturers and materials to specify. It's becoming kind of a more complex environment there and you have to pay attention. So I think the evolving nature of the entire industry can't help but have an impact on the consulting firm, the design firm, our engineering or architectural firm that's writing specifications. But I think those that are prepared will ride the tide just fine.

Heidi Ellsworth: Yeah, and it is. It's a lot about preparation. Ed, what are you seeing and what have you seen over your career on how this ups and downs?

Ed Krusec: Sure. I go back ... and I'm from a manufacturing perspective, I'm looking back to the early 90s when specifically membrane manufacturers did not care whose installation went beneath their membrane. All the installation manufacturers were independently owned, until the early 90s when Firestone Building Products purchased a company by the name of Thermal Systems. They were the largest polyiso manufacturer in the country, and they offered, perhaps the very first full system warranty to the industry. All the other manufacturers were unable to meet that until they started private labeling product. So they could offer and offer a full system warranty as well. And then, in the mid to late 90, Johns Manville bought NRG Barriers.

And then, Carlyle Construction Materials purchased Hunter Panels in the early 2000s, Sika purchases Rmax. GIF is building their own. The importance of having that accessory of Polyiso in their systems was enormous, and that was a lot of acquisitions and consolidations and so on and so forth. It's been going on, it was mentioned earlier for years and as we go forward, like Jason mentioned, I like to use analogies and I look at college football. We could see a time where we have three major groups, the big 10, the big groups in our college football in the US and does that happen as mentioned, global manufacturers that are monsters in our industry and how does that affect all these things going forward, applicators and so on and so forth.

Heidi Ellsworth: Yeah, I mean, there's a lot of things that kind of trickle down throughout all of these different acquisitions into the industry overall. And we're going to talk more about that. Brian, what have you seen?

Brian Whelan: Well, in your horizon there, you talk about 30 years, right? I think what I see is that acquisitions ... it's not just in roofing, but acquisitions have become kind of the norm or a norm in how you grow a business today. In fact, many companies, acquisitions is one of their growth pillars. They typically have four or five different pillars of how they're going to grow their business in the next five years. And acquisitions is a piece of that, especially if you look at international companies, the US market overall is very attractive because of its size, because of the political stability that we have and the business ethics. You don't have that around the world. You have that here in the United States. So the US is a very attractive market.

International companies, especially construction players, it's not just roofing. Building envelope now is where building construction material companies want to be. They want to get more dollars per square foot of a building. So you do that by getting really good at roofing and also the other part of the building envelope. So I think it's here to stay. Acquisitions is going to be a piece of how businesses continue to grow moving forward.

Heidi Ellsworth: Yeah, yeah. More so it seems like than ever that is becoming part of the strategy overall. Reid, you've been across the board. What have you seen?

Reid Ribble: Well, I think going to what Jason said a moment ago, there's an acceleration that we're seeing right now because acquisitions aren't new. They've been going on for a very long time, my entire career. However, there's an acceleration, primarily driven by private equity money. So you have to figure out, well, why is this going on? And I think there's a couple of things. One is that the Dow, the NASDAQ, the S&P 500 are trading at record highs and have for the last eight years. And so private stocks are getting expensive. And so, investors are looking for alternatives because they're chasing returns for their dollars.

Heidi Ellsworth: Yeah.

Reid Ribble: In fact, there's so much investment money out there right now that some estimates show the private equity space has got over three trillion of dry powder. And dry powder means that's money that's not invested, that they're looking for something to buy with it. And so, they're chasing roofing contractors, roofing distributors and roofing manufacturers everywhere they can find them. And really, quite frankly, all across the construction space. And so, what are they trying to buy? What are they actually trying to buy? Well, one of the things they're doing is they're buying their competition. How do I buy out the competitors and then, minimize competition? You can see that in HOLCIM who just bought Elevate and bought Duralast, so two competing companies and I think you can find examples of that out there.

They're also chasing returns or buying profit, and they do that via consolidation. They're buying market share. The old model used to be, it's greenfield. Everything we wanted to grow in a new market, we'll go put a person or persons in that new market and try to greenfield it with a whole new company. Today, they're just going in and buying the companies and then finally, they're buying labor. We've got a massive labor issue in construction and almost every single field. So they're able to acquire labor and skilled labor at that. So there's a lot of reasons that private equity is being such a major player in the roofing space. I suspect it's going to continue, especially as we look at in contracting, in particular.

There's about 35% of the roofing contractor owners that are aging out, and they're going to look for a place to get a return on their years of investment in their own companies. But that's kind of the lay of the land as I see it.

Heidi Ellsworth: I see it. So when I started in the industry in the 90s, as Ed just said, there was a lot of acquisitions going on. There was a lot of roll-ups on the contractor side, Reid, that were going on, but that really wasn't pushed by private equity, was it?

Reid Ribble: It was funded by private equity.

Heidi Ellsworth: It was funded by private equity. And what kind of happened, because it's like this big thing happened in the 90s and then, it stopped. And now, all of a sudden, it's starting in the last couple of years again.

Reid Ribble: Yeah, it's starting again because A, there's been some successful models and one just needs to look at tech of America to see how successful this can be. I mean, it's an incredible success story now, 25 years old, over a billion dollars in revenue a year. That's a pretty enticing target. They're likely to draw attention from the big boys like Bain Capital and others, BlackRock and things like that now. As I said, there's more money in private equity available to go after this. And I think the construction industry writ large has now become a nice target because these companies are showing net profits in excess of 10% of revenue. That is a pretty enticing target for private equity. And those returns look really good.

And as you consolidate, you can tweak those returns up because you're centralizing purchasing, you're centralizing HR, you're centralizing accounts receivables and payables accounting, things like that.

Heidi Ellsworth: Yeah, it's so interesting to watch how these companies ... one thing I just do want to point out, as we're still talking about the history here is that it seems like you have these consolidations on manufacturing. I mean, I can think of all the companies, we know, Elk, all the different companies out there that were acquired, but then other companies start coming back up. It seems like then you have this space that opens for entrepreneurs and you have more companies coming up. So as people are talking about, it's just going to be ... like Ed, you were talking about, it's just going to be three major leagues.

It seems like the entrepreneurial spirit of construction in our industry does continue to grow more to bring more companies in for, looking to be long-term acquired. What are you seeing there? And Ed, I'm going to go to you because I know you've seen so many of those.

Ed Krusec: I think Reid hit something very important here, and it was buying your competitor and by buying that competitor, those many things that he mentioned are really important. There's only so much demand and you start building more and more Greenfield-type manufacturing facilities. And then, again, the labor to make that product becomes so much more difficult. I think long-term ... I think it's universal through the group here that acquisitions and mergers will continue strongly. Who could have thought we would be here 20 years ago where we are right now, and we will continue. And it'll be challenging at times as well. It has been, and will continue to be.

Heidi Ellsworth: I want to show some of these. I mean, we have this on Roofers Coffee Shop every day with different acquisitions. Roofers Mart, Masonite, the SRS and Home Depot, which was a huge one. Beacon also with Chicago Metal Supply, which I thought was incredibly interesting. And so, we continue to see these top stories in the news coming out with all of these different acquisitions, but we have some interesting questions coming around that. And so, there's one question here and I have to tell you, Lily, we weren't sure we were going to bring this up, but you brought it up, so I'm going to put it out there to the panel here. But she said ... Lily is with principal, and she said, "I'd love to better understand how the US listing of HOLCIM will change up the market, if at all.

Also, super interested to hear any thoughts on QXO and Beacon. So Jason, why don't you start us out on that?

Jason Stanley: Well, I actually might not be the best to speak to that. I'll defer to somebody else on that. Maybe Reid or Ed, you've been close to some of the companies that HOLCIM's acquired and selling products to them. How do you see that playing out?

Ed Krusec: Yeah, we do not ... Well, we do not work with HOLCIM, but when they purchased Duralast, we were a private labeling product for Duralast. And I think that HOLCIM has allowed Duralast to remain somewhat autonomous with their own brand and their own contractor base. That's just what I've seen. All acquisitions are different and sometimes the acquired company completely goes away, or over a period of time. So I'm not sure how it will continue to play out. It may remain as is. Duralast has a very loyal applicator base, but they're all also different.

Jason Stanley: Yeah. Ed, you bring up something that's interesting in that, where you said that they're all different and me being relatively new to this, I assume they were all the same. And what I'm finding is different models perform differently and every acquisition is different. I'm here to show right now in Florida, and I can't tell you the number of people that have come by and congratulated me on my retirement, on my exit, I was like, "Well, I only sold half my shares. I'm still invested. I'm still running the business." And I think people need to understand that not all acquisitions are the same, and companies that acquire different companies allow them to run differently. There are some that systematically try and fold things up and roll things up into one organization.

And then, there are others that allow for this term I've never even heard or used before, was this decentralized model that Kingspan falls, which is where all these companies truly run autonomously while they're owned by the same company, they may have different brands and they're not required to even sell to one another. They may sell to competitors or others. So it really is a different dynamic that I'm having to learn myself on how to work in a company that is truly decentralized, where I'm going to go meet with another company that's owned by the same company and we may or may not choose to do business together or share information together, which is really unique to me.

Heidi Ellsworth: Reid, some of your thoughts on just overall, what's happening?

Reid Ribble: I think when you look at the various operating models that manufacturers are taking, in many cases, they're not just buying another company, which is growth, they recognize that. But if you take the HOLCIM model where they bought a company like Malarkey, they entered into an entire new space, which is predominantly residential, where they bought Duralast. That's a competitor, but in many respects, they're operating in the same way that Kingspan purchase IB, giving them great autonomy and wanting to have access to their four or five, 600 contractors that do that.

And also, gives them a chance to introduce their other lines to those contractors. And it opens up different things. And the other operating models are to roll them into. And I think you really see that in the distribution space where they acquire companies. Like I noticed on your thing that one of the reference marks were purchased up by Beacon.

And that becomes a Beacon company, not a Roofers Mark company. And if ABC Supply by somebody, that's a ABC supply company, Interestingly enough, Home Depot is allowing SRS distribution operators, SRS distribution. And so there's as many operating models as there are private equity companies and bigger owners. They run these companies differently and they've got different operating models as they seek a competitive advantage in the marketplace. And here's the thing that I do know is that consumers end up being the biggest winners in most of this. And so, because there are efficiencies with scale that help keep prices at a better spot for consumers and consumers should be fearful of the amount of acquisition, they should in many cases be applauding it, because I actually think it's a benefit for them.

Heidi Ellsworth: It's interesting. Brian, you've been through a lot with Sika and everything you've done. What are you seeing with these recent consolidations and different ways?

Brian Whelan: Right, and I think that in this case, maybe Sika and HOLCIM, maybe a little similarities, right? First Swiss companies. HOLCIM was primarily in the concrete business, and this is all public knowledge. They made decisions that they wanted to expand into other things besides concrete. Roofing being really the first thing that they've really invested a lot of money and energy in. And again, the reason why they've explained they've done that is because roofing is such a desirable market. It's really kind of recession-proof because of the large re-roofing market and because of the large maintenance market. But in addition to that, sustainability ... don't underestimate sustainability. That they have determined getting into the roofing business, which is a combination of roofing membrane technology, but also insulation.

It's really a very good sustainability story. And lastly, I got to mention it earlier that a lot of companies want to become not just roofing companies, they want to become the building envelope company of choice. So I think that's part of the reason why you see large international companies like Sika and HOLCIM investing in those ways.

Heidi Ellsworth: Yeah. Yeah. Sustainability is playing and the building envelope. And Ron, to that point, we have a question from Keith that I think really hits home. It says, it seems as though the brand owners are looking to have a touch throughout the building envelope, one-stop shop model. What are you seeing on that from the roof consultant side?

Ron Harriman: Yeah, I think as Brian was just alluding to, it's part of the magnet effect. Why would a HOLCIM of the world be interested? Because ... And many of these manufacturers, especially on the manufacturing level, if they can get another piece of the building and perhaps they're even somewhat related or integrated when it comes to building envelope in particular and now increased concern for energy efficiency, which I believe is probably only going to get ... continue, why not? And so, one of the conversations I heard recently had to do, if you think of where we just came from in the last five years, we kind of navigated as an industry through COVID and then, an unprecedented disruption in supply chain.

Well, any type of disruption to a business on the backside of it can lead to increased strength. So I just heard discussion of an acquisition which actually helped insulate their supply chain. They felt less risk to their business if there was a future ... some type of disruption in the supply chain. So I think there's so much that can be an advantage.

One of the ... I don't mean to avoid the question here, but I think the objectives of the acquisition need to be understood. And sometimes the public may not know, but in a public situation perhaps we will know. But we've all seen the evil empire private equity come in and just strip a company out and plan to resell it or close the doors or whatever. But then likewise, when they come in and invest in HR and marketing our research and development, that has a potential to be incredibly helpful.

And when I think about a macro level, let's even get out way further than the roofing industry. And you hear maybe early discussions of, "Hey, Google is getting too big," but we don't have anything in the roofing industry even close to monopolistic type companies, roofing contractors, the biggest of which, what, one or 2% market share? We got a lot of room to go here. There's an incredible runway. And again, I think maybe being really, really strong in our management teams, our leadership teams of our companies, whether you're acquiring or being acquired or preparing for succession in some other way, none of those are bad, but let's really think through the legacy impact, how we want to be prepared for such disruption to our business.

Reid Ribble: And Heidi I, if I could just add one thing to what Ron said, I think he hit on something that's pretty important here, is that there are private equity companies in the roofing space, predominantly in the construction side, not so much on manufacturing and distribution, but in the construction side that are putting a group of companies together with the sole intention of just building a larger company, so a bigger fish can buy it at a higher multiple. And so, their incentives are all to drive the bottom line and balance sheet to look better. As a result of that, they're not always long-term thinking and that can in fact, have a negative impact on the industry, particularly its reputation. And they typically won't participate in local regional national trade associations.

They're not really a participant in the broader industry. They're just seeking returns, and they're going to try to build that bottom line as fast as they can and then sell it. And that can be a bit of a danger, but the marketplace will typically kind of find those people and move them out.

Jason Stanley: Reid, I got a call just yesterday from one of my customers, a 20-year customer in Colorado that said, "Jason, you promised you would never sell." And she had just learned about the acquisition and she was really disheartened. And I explained to her, well, yes, we've been very repugnant to selling. I wanted to see this business transition to the third generation. But if you look strategically at IB Roof System's goals as to where we wanted to go, the roof membrane for my whole life has always been the cost driver today, right? Insulation is two, three, four times the cost in different roof assemblies. Adhesives oftentimes cost more than the roof membrane. A cover board today, depending on which one you're going to go with, that could be more than the roof membrane. The roof membrane, while it may determine the longevity or the life of the overall investment, it's no longer a cost drive.

Insulation is number one. And so, if we want to compete on large projects and we want to grow our brand and our business, being vertically integrated in insulation makes sense. And Kingspan is the global leader in insulation. So for me, I was presented with an opportunity that was both strategic and then, I believed unique as well as it wasn't what I believed it to be, which is this kind of folding in and massive consolidation of my business with other businesses, but actual real autonomy and retained ownership of the company that I never thought was even an available option. So presented with new variables and an aligned strategic plan, acquisition made perfect sense with the right partner in the right scenario.

So I think you have to look at it as Ron alluded to, right? It has to be strategically aligned, but I think in this kind of frenzy of acquisitions, we're going to see some mistakes made people that are just buying, people that buy people that aren't necessarily thoughtful and strategic. So being knowledgeable about the opportunities that exist and some of the structures that are out there, it changed my mind and opened my eyes to the world of acquisitions.

Reid Ribble: And I think Kingspan also understood that they wanted to get into the US market with their insulation because we are a systems driven marketplace, they needed to have access to a membrane.

Ed Krusec: I was going to say that exact same thing because what I talked about earlier was membrane manufacturers buying insulation companies, here's now an insulation company buying a membrane manufacturer. And like Jason said, the membrane still drives the sale. It's the specification, it's the warranty, yet there's a component that is the most expensive piece of the whole system, often. I don't know another industry where what ... the most expensive component doesn't drive the sale.

Reid Ribble: Maybe Ron could tell us that he does a lot of roof design. Why is that, Ron?

Ron Harriman: I was thinking of somewhat off color comment to make about that, but I know Heidi warned us about such things, but it is like the tail wagging the dog here a little bit, but I think even going back to the brand question when the integration ... it all has to work together. So the market is somewhat ... if you think of the consumer, do they really care? Maybe we've all oversold the benefit of system warranties and warranties in general, but I think that's kind of a narrow focus in some respects. Yeah, it is a new situation to us when it comes to the price equilibrium and what goes into cost of a roofing project? Well, the biggest variable is still labor on most projects, unless it's a big materials intensive project.

So I don't want to forget our 35% of the roofing contractors that are potentially aging out here and don't have a succession plan. But on the manufacturing front, this is big business. This is no longer mom and pop shops. They're looking at a variety of factors, sellability factors, when they're evaluating companies. I got a feeling all of these private equity firms are going to evaluate. I don't know what's the number? You guys maybe know way better than me, but I wouldn't doubt it's 100 companies before they figure out which one to buy. And they're going to look at so many factors.

Heidi Ellsworth: To that point, and I want to, because Tim, thank you for your question you had over here and I think it's been answered across the board, but I want to make sure we answer it from the viewpoint of really how these ... let's talk about the acquisitions and mergers on the manufacturing and in the distribution level and how they're affecting contractors. Do contractors ... I mean, I love that, Jason, your example of one of your customers calling and saying, "Hey, how's this going to work?" And you being able to have that message of this is only going to be better, Reid, you've already said that too, but there's a lot of displacement that goes on during these acquisitions, whether it's in the manufacturing and distributing people, losing their jobs or things changing.

And then also, how the contractors have their relationships with those manufacturers and distributors and will it change. So let's talk just a little bit about that effect on the industry also, not just contractors, associations, the industry overall as a whole. Reid, why don't you start us out?

Reid Ribble: Yeah. I've often said that employees don't leave bad companies, they leave bad bosses. But I would tell you that contractors don't always buy from companies, they buy from good representatives. And so, if you've got a really great relationship with your local distributor and then Beacon or ABC or SRS comes and buys them up, if they're smart enough to leave the people that are there that made that company successful enough that they wanted to buy it, it doesn't change a whole lot because they're buying from people and they're buying based on relationship more than anything. Then, I mean, obviously, price and rebate programs and things like that, but those bigger companies often bring better pricing and better rebates.

And so, it really doesn't affect contractors all that much if their key people are left in place. And I think that's true at the manufacturing sales level and at the distribution.

Heidi Ellsworth: Yeah, and Brian, you've been nodding. What's your thoughts?

Brian Whelan: Well, yeah and I think Reid, you should probably come back and talk about the impact for associations, because you could speak to that better. But yeah, I'm shaking my head because I agree with what everything that Reid said, our business is no different than any other business you buy from people. So if you like the person, that's who you're going to buy from. So I think that's a key element. And certainly the suggestions that we would have as part of, let's say the acquisition integration team is you have to be very careful to disrupt the sales organization. You really need to make sure, quite frankly, that the biggest focus is let the salespeople get comfortable.

They get to explain what this acquisition means for them, but then really, get out there and do your jobs. Really. That's what you need to do is don't lose sleep, don't lose focus on selling. And I think that the customer, in this case, the contractor will really see that. If he sees fear in the eyes of the salesperson or thinks that something is going to happen negatively to that salesperson, they're going to watch that very closely. And then, you might see them move away from that distributor or manufacturer. So it's all about how you ... and we haven't talked much about that at all yet, is really how do you successfully implement the acquisition to make sure that you're not going backwards with the acquisition.
We always looked at acquisitions that simple math, one plus one should equal three for an acquisition or at least two and a half. If you're going to take a step backwards or lose two or three years because of turmoil and changeover and everything else, the acquisition probably wasn't worth it for you.

Heidi Ellsworth: And I want to point out too, manufacturer's reps. I'm thinking about that. That manufacturer's reps get hit time after time with acquisitions, and they are the heartbeat a lot of times to these contractors of getting their information.

Reid Ribble: Yeah, but I also think, Heidi, that you can't have a discussion on the manufacturing or distribution side without touching on the maturity of the market. There has not been a lot of new products introduced in the roofing market. There've been some new ways of putting products down with the different types of fastening and adhesives and things like that. But TPO was really the last big new thing, and that's 30 years old already. And so we're in a very mature market space. And so, if manufacturers are wanting to grow in the way Brian just said a one plus one equals three, it's almost always done through acquisition rather than introduction of new products. And I think if there's one thing at risk here is that we're not introducing enough new products and new ideas.

And so, I think that's something that I hope as the valuable resources that these larger entities bring to play. There might be more money for investment in R&D and some new products might emerge that we're not even aware of yet.

Heidi Ellsworth: That kind of goes to Europe. Sorry, Jason, but I mean with all these Europe influence coming in, we were just there for the IFD. There's a lot of products that I was like, I've never seen this before.

Jason Stanley: No, Heidi, exactly. You took the word straight out of my mouth, but I'll be in Germany on Monday. I'll be in Brussels on I think, Wednesday. And I'll be in Trier, France later in the week, I think on Thursday and then, I'll be over in Rust Germany on Friday to finish it before I fly back. There is so much exciting things that are happening in Europe. They always seem to be somewhere seven to 10 years ahead of us or maybe just doing it differently. One of the things I've really enjoyed with this relationship with Kingspan is the opportunity to copy some of the things they're doing in Europe and introduce them into the US market and adopt some of those best practices.

I have a sticky note on my desk from a conversation I had with Ron Harriman that said, "Don't confuse innovation with manufacturing efficiencies." Innovation in our industry typically looks like making it faster and cheaper or wider in some cases, but it's not really a new product. It's not a new formulation, it's just not going to last any longer. And we haven't come up with a lot of new real sexy stuff in this industry in a long time. It's pretty mature. So what do we do? We try and make it faster and cheaper, but I too am excited about some new products that can come about that can improve our industry and that we can introduce to the market in the coming years. And I do believe big business does that. They have bigger budgets for R&D. You bring some smart minds together.

But to touch on one point that was said earlier, even in my own company, there was a letter that goes out that says there's no changes until the letter that comes out that says all the changes that are going to come. And what I've found interesting with this Kingspan acquisition is the letter went out that there were no changes and there really aren't a lot of changes. Our business is going to operate more or less the same. There's not this folding in of ... I didn't buy a competitor, and we have two sales forces and we're going to fold the sales force in. I don't have two finance departments that we're going to fold in or two legal teams that we're going to fold in. We're really operating in the same marketing channel in the same direction.

We've just got some new verticals into insulation and some robust partners, and some companies that Kingspan owns that I get to go visit and go share ideas with and thoughts with that make me better and that we can bring those products to market.

Heidi Ellsworth: Jason, we have a question here from Katie that I think kind of goes because your family started IB Roof Systems, so you could say it was a mom and pop, kind of, with your mom and dad at the very beginning. And Katie says, do you think that the mom and pop companies will become a thing of the past within the next 10 years?

Jason Stanley: So I think someone mentioned earlier, as companies grow up and fail, it creates this entrepreneurial spirit of other companies come and take up and grow. I think that can certainly happen on the contracting side and the consulting side. I don't know how that works on the manufacturing side. We were legitimately one of the smallest family owned roofing manufacturers in the industry. And to keep pace today with the requirements for FM, UL EPDs, just the R&D and technical budgets to try and compete in this market space is extremely difficult. We're seeing a new manufacturer enter the market and they're building a new TPO plant. I think they're in for a real shock when they don't have all of the other components that come with it.

If you're not selling a system sell, you're really going to struggle in this business. So for me, for our business, for us to grow and compete in this world of consolidation, Kingspan was not only a strategic alignment, it gave us verticals in the most expensive portion of that roof assembly, which was that insulation piece. So yeah.

Heidi Ellsworth: We have another question here. I want to make sure we get these in, and this is from Lily. She had asked some questions earlier too, but she's ... After the Home Depot and SRS Acquisition, she's wondering, do we see other big, is this drawing people from outside the traditional roofing space? Lily mentions Lowe's, but I think on the bigger question is, do we see the bigger outside of roofing world looking in at roofing? Not just private equity, but other big companies. What are some of your thoughts?

Jason Stanley: Brian mentioned it earlier, HOLCIM, right? They're not a roofing entity, they're construction or a concrete and making their presence known, but I'll defer to other people. There's certainly a lot of wild opinions on that or different opinions on these different companies that are looking at that space. Reid said it earlier as well-

Reid Ribble: And I also think ... I think it's easier now for companies to see what happens because Home Depot is publicly traded. You're going to be able to see the impact on stock price. You're going to be able to see whether it actually worked. And if the result is really positive, then sure, you're likely to see others follow. But again, that distribution space is ... really consolidated a lot over the last 15, 20 years. And so, it's going to take a very big buyer for someone to pick off a beacon or an ABC supplier or somebody like that.

Heidi Ellsworth: Yeah. Yeah. So, as we get here to our ... and if you have any questions out there, please let us know. Please bring them up. One of the things that we wanted to kind of leave here today was really from all of you to be able to talk about what is some of your advice to contractors in navigating acquisitions? What should they be doing looking into 2025 and thinking about their manufacturing, their distribution, their own business and acquisitions? What is some of your advice? Let's start with you, Ed.

Ed Krusec: Flexibility, being flexible and working with the gamut of manufacturers. Trying to work with multiple systems because as companies are acquired, it was mentioned earlier, the independent reps. The rep that you have become familiar with, his company is purchased by somebody else and now he may not have that job and be flexible. Be flexible to opening up your business to look at more opportunities within your business as well.

Heidi Ellsworth: Yeah, that's great. Ron?

Ron Harriman: Yeah, there's a lot there. I think as several people have alluded to, this is still a relationship business, especially when you're down talking at a contractor level and it's really the heart of the industry and I certainly don't think that we're going to see a complete vacating of that space when it comes to the importance of small and mid-tier roofing contractors. I talked with a roofing contractor yesterday as 20 guys has a particular niche. You might think of it even being in a traditional kind of bid market, but the reason he can survive and name his price or get a decent price in that bid market is he has such great relationships with the general contractor base in that geographic area. So it is a relationship business, but I just love the idea, if you think of preparing a company to withstand storms in the future.
Whether it's economic downturns or some type of disruption in the marketplace, or being prepared for acquisition, strengthen your company and I've got kind of a list that I mentally walked through with companies. It's like, "Hey, how do you be prepared whether or not you are acquired," but you will never regret being well-prepared.

Heidi Ellsworth: Great. That's great. Succession planning is what everybody ... yeah, and across the board. Brian.

Brian Whelan: Yeah. So the question again was how should a contractor watch what's going on with the acquisition, right?

Heidi Ellsworth: Exactly.

Brian Whelan: And I think that there's ... I guess, again, my suggestion would be there's probably some telltales about what's happening. And again, I mentioned it earlier, your direct salesperson, you can tell it by looking in their eyes whether they're concerned about their job or whether they're concerned about the company's direction or redirection, whatever that might be. So I would say to the contractors, again, stay close to your salespeople that you've been always trusted and you've worked with and they're the best, I think, lens to see what's in front of what's happening. And again, it's something that the sales force hopefully remains stable. That's one of the things that we kind of noticed that the more stable ... assuming again that what you acquired was a good sales organization, if it is, then keeping that in place intact as much as possible.

Those relationships are critical. Again, that math one plus one plus equals three. So it's really just watching kind of what's going on. Don't overreact to it, because as we've said a bunch of times, acquisitions are done for different reasons. And this very well could be very helpful to that salesperson that you're dealing with. Time will tell. And typically, again, my experience would be, it doesn't happen in the first few weeks. It's really months and certainly in the first year, you'll really know where this thing is going, whether it's good news or bad news.

Heidi Ellsworth: Reid?

Reid Ribble: Yeah, I would just say be patient with everything. If you're a contractor. Don't take the first offer you hear. And then, going to what Ron said, I think it's really, really important is if your company's generating a net profit of three to four, 5% a year, you should not be expecting to get those big multiples that you're hearing about in rumors in the marketplace. That eight, nine, 10 multiple. Because they're going to view your company as a lower performer and that they have to invest more into. You need to fix that kind of stuff first to make your company more valuable to the potential buyer. And so, whether you're going to sell it or not, prepare today as if you are. And not only will you be making more money in the short term, you'll be more valuable in the long term.

Heidi Ellsworth: Great. And Jason, bring us home. What are some of your advice to the contractors out there with what they're dealing with across all levels of acquisitions?

Jason Stanley: So I liked Ed's point on flexibility. I had a chairman of the board that used to drive me crazy. We'd go and we'd give him information and he would say, "Go this way. This is exactly the way you need to go." We'd go that way. And then we'd come back and we'd bring him more information and he'd say, "Go that way." And I'm like, "Do you not have any pride?" And he is like, no. Why would I take one more step in the wrong direction? Clearly, that's the right way to go. And so, I've tried to emulate that. I like to think I know, and I'm trying to grow and learn, but am I learning in just huge quantities here? The most I've ever learned in my life has been probably over the last six months. My eyes have been open to a different side of the business, different opportunities, different ways to sell, different exposures I didn't really know we had.

So I would suggest that, be flexible, always be learning, be humble and recognize that you may be, feel like you're an expert in your field, but there is so much to learn. As I've gone and talked to these other companies that are owned by Kingspan, it is just a wealth of knowledge. So the company we have today will be different tomorrow based on knowledge and based on what you learned. So don't be so stuck in what you believe or what you believe to be, right? There's lots to learn.

Heidi Ellsworth: Yeah, you know what? This is so true and this whole conversation, I mean, this could go on for another hour or two hours, it's just great. And so, I do want to say we have all kinds of comments on here, thanking all of you for your great knowledge, for your time, for what you bring to the industry and for this great conversation. So I want to thank everybody who's out there. Thank you for your comments, and we're going to keep bringing this kind of great coffee conversations to all of you. So to all of my esteemed panelists, thank you very much for doing this today and sharing your wisdom and your knowledge. It's just amazing. Thank you.

Brian Whelan: Thank you, Heidi. Bye.

Jason Stanley: Thank you. Bye.

Outro: Thank you everybody, and thank all of you for being here today, for listening and for participating with all of your great questions. I want to do a special thank you to IB Roof Systems. Again, great topic, great sponsorship. Be sure to follow them. Check out their directory on Roofers Coffee Shop. And also, with all the exciting things that Jason is bringing, IB Roof is going to be bringing some amazing opportunities in 2025, so stay tuned. It'll all be on Roofers Coffee Shop. I want to also say thank you to ABC Supply because next week, we're going to be having a coffee conversation on building a community for Latino roofers. This has been so important in such a strong initiative in the industry, and Amparo Sankin has really been leading that along with her daughter Jackie and our new Spanish content manager, Itzel.

So they will be talking next week about community and driving that and building it in 2025. So please join us next week. And again, thank you all for being here. You can catch this on demand within 24 hours on Roofers Coffee Shop, Megan has it in the chat where you can find it under Coffee Conversations. Gentlemen, happy holidays. Thank you, and thank you everybody for being on today. Have a great day.