Building Product Distributor Valuations – June 2023

The broad building products sector has experienced improving financial performance and growing valuations over the last several years. High customer demand, rising prices, and elevated merger and acquisition activity fueled this recent growth. Valuations contracted in 2022, but resumed its growth trajectory in June 2023. This article will examine some of the factors that appeared to impact the valuations of building product distributors.

Important notes: This article examines potential driving factors for publicly-traded building product distributor valuations from a financial statement perspective. An actual business valuation requires an in-depth analysis of the business operations and associated risk factors that are not always evident from the data on financial statements. Also, to keep the length manageable, this article will focus on what are typically perceived to be primary value drivers. It will not touch on every observation in the data. Check out What is Value? and Risk and Return in the Market Approach for a quick read on the basics of risk and return and how they apply to this article.

The industry constituents for this analysis are listed below. The effective date of this analysis is June 30, 2023.

List of constituents analyzed in this article

Figure 1 summarizes three items for the building products distributors:

  • Market value of invested capital (“MVIC”) calculated as the sum of market capitalization and interest-bearing debt;
  • Median revenues; and
  • Median earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

The latest fiscal year is notated “LFY” (2022), while the latest 12 months is labeled “LTM” (latest available information as of June 30, 2023).

Fig. 1 - Trend of historical market value of invested capital, revenue, and EBITDA

Consistent with years of increasing customer demand and favorable pricing trends, revenue and EBITDA for the industry constituents increased through 2022. Valuations declined in 2022 despite continued improvements in financial performance that year. We previously discussed in our December 2022 update, economic uncertainty and cooling demand created concerns about inventory accumulations and the impact of pricing on profitability in the future.

In June 2023, valuations grew to exceed their December 2021 levels. Financial performance declined, however. There are a number of factors that may be supporting the resurgence in valuations. According to Truist in their Building Products Market Update as of Q2 2023:

  • Single family builders believe the residential markets have hit bottom after experiencing the worst housing correction since the Great Recession.
  • Non-residential construction is expected to slow in 2024, but certain property types are unlikely to see a slowdown due to significant project pipelines.

These factors could support demand for building products in the near term.

Valuation Multiples

Figures 2 and 3 provide a view into the historical trend in valuation multiples (revenue and EBITDA).

Fig. 2 – Trend of historical median revenue multiples
Fig. 3 – Trend of historical median EBITDA multiples


Revenue multiples increased through 2021 declining in 2022. On the other hand, EBITDA multiples declined over the last three fiscal years. Both revenue and EBITDA multiples increased in June 2023. We will explore the various factors that appear to be impacting valuation multiples in the industry.

The Growth Story

Growth often has a strong influence on how companies are valued. Next, we present a summary of the consensus forecasts for each group in Figures 4 and 5 below (note that “NFY” means next fiscal year; NFY = calendar 2023 for most companies).

Fig. 4 – Comparison of historical and projected revenue growth: prior year vs. current year
Fig. 5 - Comparison of historical and projected EBITDA growth: prior year vs. current year


In Figures 4 and 5, the orange line represents data as of June 30, 2022. At the time, the industry expected strong revenue growth for 2022, a decline in 2023, and a return to growth in 2024. Actual results for 2022 fell in line with expectations as of June 2022. Current projections have the industry constituents generating a decline in revenue and EBITDA in 2023, before returning to stable growth in 2024 and 2025.

We also looked to identify meaningful relationships between growth and observed revenue and EBITDA multiples. Figures 6 and 7 present this relationship.

Fig. 6 – Chart plotting revenue multiples against projected revenue growth rates
Fig. 7 – Chart plotting EBITDA multiples against projected EBITDA growth rates


In Figures 6 and 7, we observed that the magnitude of valuation multiples tended to correlate with projected growth rates. However, we noticed significant dispersion in the datapoints, indicating that  the relationship is not always consistently observed.

See also: Need to prepare financial statement projections? See A Practical Guide to Financial Statement Forecasts for Business Valuations.

The Size Story

Larger companies are generally perceived to have lower levels of risk relative to smaller companies. This dynamic can be due to several factors, including improved product or geographic diversification, deeper management teams, access to various distribution channels, and better availability of capital.

Figure 8 presents each company’s market capitalizations plotted against its respective LTM revenue multiple.

Fig. 8 – Chart plotting revenue multiples against market capitalization

Based on Figure 8, it appears that larger companies tended to trade at higher valuation multiples and vice versa. The relationships between size and the magnitude of valuation multiples was not consistently observed, particularly among the smallest companies.

The Profitability Story

Revenue multiples are typically heavily influenced by profitability. We usually observe higher revenue multiples in companies with higher levels of profitability. In this case, we identified a tendency for companies with higher projected levels of profitability to trade at higher valuation multiples, as shown in Figure 9.

Fig. 9 – Chart plotting revenue multiples against EBITDA margins

The relationship between profitability and revenue multiples appears to stick for most companies in the group.

The Leverage Story

Debt usage tends to increase financial risk to equity holders. Debt holders have a senior position within a company’s capital structure, and debt servicing occurs before any cash flow benefits (i.e., dividends) are issued to equity holders. Figure 10 plots LTM revenue multiples against their associated debt-to-total capital ratios.

Fig. 10 – Chart plotting revenue multiples against debt to total capital ratios

While the least leveraged companies appear to be trading at the highest revenue multiples, we noted significant dispersion of multiples among the more highly levered companies in Figure 10. This suggests that, while leverage may play a role in pricing the public building product distributors, other factors are likely more important to investors.

Tying it All Together

The trends observed in this article suggest that investors are considering multiple factors, including growth, size, profitability, and leverage. A summary of the observations in this article is presented below and compared to our analysis as of June 2022.

Summary of how the various factors analyzed in this article were observed to impact valuation multiples

I hope you found this analysis helpful. Any input, feedback, suggestions, and questions (including disagreements with my high-level analysis) are welcome! Thanks for reading.