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Published in Manufacturing
Headquartered in Grand Rapids Township, UFP Industries Inc. sees ongoing acquisitions as a key part of its growth strategy. Headquartered in Grand Rapids Township, UFP Industries Inc. sees ongoing acquisitions as a key part of its growth strategy. COURTESY PHOTO

From groundskeeper to CEO, Matt Missad leads UFP Industries on a profitable hunt for growth

BY Sunday, November 07, 2021 07:00pm

Generating $2.1 billion in revenue in its most recent quarter and operating 170 facilities across the world, UFP Industries Inc. is — by most accounts — a giant that resides in greater Grand Rapids.

And a hungry giant at that.

The Grand Rapids Township-based wood products manufacturer, which was founded in 1955 and went public in 1993, has become a behemoth in the industry. UFP is widely known for its appetite for M&A and diversification that’s not seen anywhere else to its scale in the wood products industry.

Known as Universal Forest Products for nearly its entire existence, the company changed names to UFP Industries (Nasdaq: UFPI) in 2020 to reflect its three distinct business segments: residential, construction and industrial.

“I cover some other companies like Builders FirstSource (NYSE:BLDR), which focuses on residential, and some other companies that do manufacturing. But you don’t have any companies that hit all of those different areas plus have the distribution and so many different revenue influences from different customers,” said Jay McCanless, senior vice president of equity research for Wedbush Securities, who covers the building products and homebuilder industries. “They’re a unique company, that’s for sure.”

Editor’s note: See here for an extended interview with UFP Industries CEO Matt Missad.

Hungry for deals

UFP has completed six acquisitions this year. The most recent deal came this month when UFP’s Australian subsidiary The UBEECO Group Pty. Ltd. purchased a manufacturer that specializes in ​​flexographic and lithographic cardboard packaging with a reach in the food and beverage, confectionary, pharmaceutical, industrial and agricultural industries. 

The move enhances the company’s presence in Australia, where it already has three facilities. UFP has about 170 facilities in eight countries worldwide.

What might have been a prolific year of M&A for some operating companies was just par for the course for UFP. Over the past five years, the company has made 31 acquisitions at a fairly steady annual rate.

“The pace of their deals is certainly unique among any of the companies I’ve covered,” said McCanless, who first started covering UFP as an analyst in 2008. “I think the acquisitions make sense. They’re always either adding to existing business or enhancing some portion of one of the verticals they’re focusing on. It’s a lot of acquisitions, but historically it made a lot of sense. I think it’s the reason that this company can offer such a wide range of products to different customers.”

In an exclusive interview with MiBiz, UFP Industries CEO Matt Missad — who took his post in 2011 after succeeding Bill Currie — offered a peek behind the acquisitions curtain, saying the company prioritizes M&A over organic growth.

“We look at it as ROI-focused,” Missad said. “If we can earn an acceptable ROI on a company that is already in business and selling products and making money, that’s probably a preferable step to take first.”

Inside job

 Missad’s journey to the corner office was a unique one. He first came to UFP in 1978 as a member of the grounds crew. Sticking with the company through high school and law school, he returned as UFP’s director of legal compliance.

That perspective has helped shape the culture at UFP, which avoids the traditional hierarchy of a multi-billion-dollar business. 

“We don’t like a whole lot of bureaucracy and, as you get bigger, it gets more challenging to do that,” Missad said. “That’s why, when we look at acquisitions, we target the culture first and make sure the culture is similar to what we believe.”

While UFP was plenty active on the M&A front in previous years, the company hit another gear in 2020 when it assembled an in-house M&A team. Missad explained that, before creating the dedicated team, the company would pull individuals away from their day-to-day responsibilities to help implement UFP’s M&A strategy. Missad said having a team that is entirely focused on M&A has proven more effective.

It paid off quickly. One of the company’s largest deals came last year with the acquisition of Bartow, Fla.-based PalletOne Inc., a leading wooden pallet manufacturer with 17 manufacturing facilities throughout the United States. 

UFP dipped into its more than $400 million cash reserves to pay $232 million for the company, in addition to paying off $18 million in recent capital expenditures for PalletOne.

UFP’s in-house M&A team has had to battle it out in a capital-rich market, going up against private equity firms that can afford to pay more.

“I think it’s been a seller’s market for quite a while,” Missad said. “What we do is we take all of our business units and segments — they have their own growth plans and strategies — and find companies with new products and services that we can scale across our network already. We source transactions via our own people.”

That ability to source businesses has particularly impressed Mike Brown, partner and managing director at Grand Rapids-based investment banking and private capital firm Charter Capital Partners, who has brought potential deals to UFP throughout the past few years.

“There tends to be many more buyers than sellers, so when a good business does come to market, there is a pretty wide audience,” Brown said. “I think what UFP is doing really well is it looks like they’re finding businesses on their own without having to go through someone like me.”

Brown agreed that UFP’s acquisitional appetite is markedly different from most operating companies.

“Their acquisition activity looks more like a private equity-owned business that is trying to roll up an industry,” Brown said. “That’s a pretty normal rate for a private equity-owned business. It’s much more aggressive than most, if not 95 percent, of other operating businesses.”

COVID whiplash

The COVID-19 pandemic might have caused supply chain and workforce headaches, but M&A activity remained strong for UFP and most others. Brown pointed out that 2021 is poised to be the busiest year of M&A ever.

UFP was right in the mix with 11 deals since the pandemic descended on the United States in March 2020. Still, Missad admitted that dealmaking in a pandemic came with its share of hardships.

The pre-acquisition due diligence process was reduced to mostly virtual calls, which was a problem for UFP as it places a premium on company culture and finding businesses that it can plug in seamlessly.

“That was hard to ascertain over a video call,” Missad said.

Skewed valuations were also a hurdle in the M&A process, especially in the lumber industry, which proved to be one of the most volatile markets in the world. Lumber prices skyrocketed at the height of the pandemic and only recently came back down to earth.

“A lot of our targeted companies dealt with wood-based or other types of commodity items,” Missad said. “Massive price increases made for pretty wild swings in their financial results. What we try to do is take a look at a longer range of time rather than the most recent performance because it could be skewed either up or down.”

UFP’s diversification strategy also helped to stabilize the company. McCanless recalled in March of 2020 when he wrote dire notes and models on companies in the building products space. But, within two months of the pandemic starting, demand for new homes and a surge in home improvement projects almost immediately steadied UFP.

“The huge desire for (home) remodeling, to me, that’s still the most remarkable thing,” McCanless said. “A company that sells into the big players like Home Depot and Menards like UFP does, they benefited from that. It’s still hard to believe how fast things turned and how positive things turned, almost on a dime.”

Missad said maneuvering out of the worst of the pandemic helped confirm his appreciation for the dedication and experience of his UFP team while providing lessons for the future.

“For me, personally, it was to keep your eyes and ears open and listen to your teammates and the people on the factory floor,” Missad said. “They were the saviors in my book.”

Read 2306 times Last modified on Tuesday, 09 November 2021 15:56
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