It’s been a tumultuous summer so far for ProBuild, the nation’s largest pro dealer, as it tries to keep its head above a churning housing market that has already pulled apart or capsized many of its competitors. Being a privately held company, ProBuild has done its best to quietly close or sell off yards, downsize staff and add — or subtract — staffing under the radar. But the recent consolidation of its regional offices into the Denver headquarters, followed by the sudden departure of two of the company’s top executives, has lifted the veil on the industry’s biggest player. No one has been untouched by the housing downturn, and no one is safe from its undertow — including ProBuild.
The first signs of real trouble might have been in January 2011, when ProBuild owner Fidelity Capital, a private equity firm based in Boston, sent one of its representatives to oversee operations in Denver. ProBuild was technically part of Devonshire Investors, a portfolio that Fidelity used to separate out some of its own investments from other, more consumer-oriented financial services it offers.
The executive who arrived in January, Perry Odak, was named president of Devonshire’s U.S. portfolio. Although he had no apparent experience in the LBM business, Odak has served as president and CEO of Ben & Jerry’s, Wild Oats Markets, and Evenflo Co. Odak was made chairman of ProBuild’s board of directors.
Few saw it as a vote of confidence for ProBuild. Four months prior, company CEO Paul Hylbert stepped down in what was explained as a long-planned succession move. Hylbert, chief executive since 2007, had been the CEO of Lanoga, a 325-unit LBM chain that became a cornerstone of ProBuild when it was formed in 2006. Hylbert turned the reins over to COO Bill Myrick, who had been hired away from competitor 84 Lumber, sent to the Harvard Business School Executive Education program, and rose quickly through the ProBuild ranks. From all appearances, he had been groomed to take over the chief executive’s job.
Myrick became CEO in September 2010. In less than a year he was out.
The employee memo announcing Myrick’s departure, dated July 11, 2011, was signed by Perry Odak; it gave no reason why he was leaving. Fred Marino, who had served as president and CEO in the early days of the organization, would take over while the board searched internally and externally for a “permanent head of the business.”
One likely candidate would be Jim Cavanaugh, executive VP operations. Like Hylbert, Cavanaugh had headed one of the companies — in this case, Hope Lumber — that formed ProBuild. All regional managers were already reporting to him in lieu of a chief operating officer, a position the company eliminated.
Then the announcement came, on July 22, that Cavanaugh was leaving the company at the end of August. “We thank him for his many contributions to our company and wish him well in his future endeavors,” said the official statement. Of the original founders of ProBuild, the only one left is Marino, the former CEO of the Strober Organization, which formed the foundation of what is now ProBuild. Marino declined to be interviewed for this article.
But plenty of people were willing to talk about what had gone wrong with ProBuild — provided they not be named, since they do business with the company, or are current or former employees.
“ProBuild is one of our largest customers, and we don’t have a good feel for what the hell they’re trying to accomplish,” said one frustrated supplier. “They’ve gone through so many reorganizations in the last year. It’s chaos.”
The supplier is talking about ProBuild’s June decision to reorganize itself into three groups: metropolitan, smaller local and specialty. This restructuring follows on the heels of the April 2009 decentralization move that divided the company’s four divisions — North, South, East and West — into six regions, with various ProBuild executives tapped to change locations and assume leadership roles.
When it started out, ProBuild was dedicated to a “decentralized operating philosophy,” Marino told Home Channel News in a 2006 interview. And Fidelity was on board with this, according to ProBuild’s executives. One investment banker went so far as to say that “ProBuild can take a multi-cycle, multi-year view of the industry that has nothing to do with quarterly earnings.”
But with big LBM firms, centralization is like gravity: The pull of centralized purchasing and other overhead cost savings is too hard to resist, especially in a housing cycle where money goes out the door a lot faster than it comes in.
“I think ProBuild’s mistake was heavily investing in centralization, while pursuing national accounts instead of regional dealers,” observed one LBM dealer.
Either way, it was only a matter of time before “investor fatigue” set in. Although the amount of money that Fidelity has poured into ProBuild is a closely held number, information has leaked out from the financial community. In November 2009, a confidential prospectus, obtained by Reuters, stated that ProBuild’s parent company had spent $345 million to cover the pro dealer’s losses over the past six months. Another $105 million might be necessary to keep the company going through January 2010, the prospectus said.
It’s doubtful that Fidelity has any immediate plans to pull the plug on ProBuild. But there may be some tough love in store for the LBM chain, measures that go beyond closing yards and reducing head counts. Significant losses have mounted at the Denver-based company, which sources say have been compounded by a costly Oracle SAP system rollout that began last year. The implementation, according to several sources, has been problematic, especially at the customer- and salespeople-facing applications.
The company has also continued to make acquisitions. In April it purchased Harbert Lumber, a four-unit chain based in Denver. In June, ProBuild announced it was moving into western Pennsylvania with three locations. The company reportedly hired Harry Streyle, an area VP for 84 Lumber, in the fall of 2010 along with other outside salespeople in the Pittsburgh area. But so far ProBuild has opened only one location, in Morgantown, W.Va., where 84 Lumber already has two stores. Morgantown is located 40 miles from 84 Lumber’s headquarters.
The whole question of pricing — what it charged builders and what it didn’t — is a can of worms when it comes to ProBuild. But this much is clear: Transparent pricing, selling below cost and similar concessions don’t work in the long run. Said one competitor: “If the market starts to accept a price where we can actually cover our costs, then we all get healthy.”