Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of building products supplier Builders FirstSource, Inc. (NASDAQ:BLDR) have jumped an incredible 69% so far today after it announced the acquisition of ProBuild Holdings LLC.
So what: Builders FirstSource is paying $1.63 billion for ProBuild, which had $4.5 billion in revenue last year, nearly three times that of FirstSource. The deal will be paid for by existing $350 million senior secured notes, $295 million of a new $800 million ABL facility, and a new $550 million Term Loan B.
FirstSource also announced the intention of offering $750 million in new senior unsecured notes and $100 million in new equity before the deal closes.
Now what: This is a huge move for Builders FirstSource, and a highly leveraged transaction. With just a $1.1 billion market cap, even after today's move, the company is betting on future growth in the space to pay for the debt it's taking on.
Clearly, the market is a fan of the move today, but even a pro forma debt/adjusted EBITDA estimate of 5.6 times includes $110 million in cost savings that are often overstated in acquisitions. I'd be cautious on the new debt and would like to see how operations play out rather than buying the market's hype today.