News

According to Continental Building Products (CBPX) the company is a leading, high margin manufacturer of gypsum wallboard and complementary finishing products.

13 other companies are scheduled to IPO this week.  The full IPO calendar is available at IPOpremium.com

CBPX scheduled a $225 million IPO with a market capitalization of $750 million at a price range midpoint of $17 for Wednesday, February 5, 2014, on the NYSE. CBPX priced February 4 late afternoon at $14.

Manager, Joint managers: Citigroup, Credit Suisse, Barclays, Deutsche Bank Securities, RBC Capital Markets

Co-Managers: Zelman Partners, SunTrust Robinson Humphrey, Stephens, BB&T Capital Markets
SEC Documents

Overview

CBPX’s manufacturing facilities and sales efforts are concentrated in the eastern United States and eastern Canada.

Apparently the pevious owners had the businss on autopilot and, for example, generated negative gross margins for 2012.

CBPX’s new owners/managers (as of July ’13) immediately used two the oldest tricks in the books to generate immediate improvement in the income statement – raising prices and stuffing the distribution channels.

This is a typical private equity deal.  CBPX was formed in July ’13, then increased borrowings to pay out a $130 million dividend in December ’13.  Plus, shareholders intend to sell 1.5 million shares on the IPO, worth $25.5 million. 

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing December ’13 qtr

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Continental Building Products (CBPX)

$748

6.7

33.7

2.5

13.9

30%

Conclusion
In 2012 the gross profit was negative.  CBPX sponsors came in and immediately raised prices.  Looks like they also stuffed the distributor channel to show increased sales and increased operating profit for the December ’13 quarter…because they increased prices and units sold, for what is an undifferentiated commodity product.  Yes, CBPX's product is synthetic but in this  economy seems like price is most important.

Which raises the question, “How far in the future can the improved income statement performance be extended?”

Also, home sales were down in December & that had negative fallout for NWHM (IPO'd Friday, Jan 31).  NWHM cut it's IPO price to $11 from a mid-range price point of $16.  There's a good chance CBPX's pricing will also be affected.

Based on the valuation numbers CBPX seems priced on the high side.  The IPO rating is neutral to negative at the price range mid-point.

Business

CBPX is a leading, high margin manufacturer of gypsum wallboard and complementary finishing products.

CBPX’s manufacturing facilities and sales efforts are concentrated in the eastern United States and eastern Canada.

Gypsum wallboard, which is also known as drywall, is a primary building material used in new residential and commercial construction and in repair and remodel, or R&R.

CBPX estimates that in 2012 its market share in the United States east of the Mississippi River, a market which accounted for more than 55% of total U.S. wallboard demand, was 17%, and its share is significantly higher in many of the major metropolitan areas within a shipping radius of 300 miles of its facilities, which include New York, Miami, Tampa, Orlando, Cincinnati, Cleveland, Columbus, Indianapolis, Nashville, Jacksonville and Hartford.

CBPX operates highly efficient and automated manufacturing facilities in Silver Grove (Kentucky), Palatka (Florida) and Buchanan (New York) that produce a full range of gypsum wallboard products for its diversified customer base.

History

CBPX increased borrowings by $130 million and distributed the proceeds as a return of capital to the sponsor, Lone Star on December 2, 2013.  Plus, shareholders intend to sell 1.5 million shares on the IPO, worth $25.5 million. 

In July 2013, Lone Star Fund VIII (U.S.), L.P., along with affiliates and associates the sponsor, formed CBPX to acquire assets comprising Lafarge’s North American gypsum business.

Intellectual property

CBPX maintains many trademarks for its wallboard and finishing products, including, among others, LiftLite^®, Firecheck^®, Mold Defense^® and Rapid Coat^®. CBPX also relies on patents and trade secret law to protect some of its manufacturing processes.

Competition
Competition in the industry occurs principally on a regional basis, and CBPX believes that national scale has limited benefits.

Each competitive geographic region has a different group of manufacturers and customers and, as a result, a different competitive landscape.

5% stockholders

LSF8 Gypsum Holdings, L.P.  100% 
LSF8’s sole owner (shareholder) is John P. Grayken.  His address is Pyford Court, Pyrford Common Road, Woking, Surrey, GU22 8UB, England, United Kingdom.

Use of proceeds

CBPX expects to net $183.8 million from its IPO from the sale of 11.8 million shares.  Shareholders intend to sell 1.5 million shares. Company proceeds are allocated as follows:

$2 million to make a one-time payment to Lone Star in consideration for the termination of CBPX’s Asset Advisory Agreement with certain affiliates of Lone Star upon consummation of this offering;

to repay outstanding indebtedness, including:

$158.1 million under the Second Lien Credit Agreement, including an early prepayment premium of $3.1 million; and

$23.7 million under the First Lien Credit Agreement; and

the remainder for general corporate purposes.

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