May 13, 2024

Schoeneman’s Building Materials Center, one of the city’s oldest locally owned businesses, has been acquired by the leading building materials company in its industry.

Builders FirstSource Inc. closed on the deal May 1.

For Schoeneman’s, which transitioned to an ESOP, or employee stock ownership plan, in 2016, the move meant dissolving the employee-owned structure in favor of the resources Builders FirstSource can bring to position the company for the future.

When the deal closed, there were three actual shareholders in the company: chairman Al Schoeneman, president Pat Costello and the ESOP, which was represented by an independent fiduciary trustee.

“This provides for the future … the services they have built over the years” said Schoeneman, who is transitioning to a volunteer adviser for the company.

Terms of the deal were not disclosed.

Schoeneman’s dates back to 1888 when it was founded in Iowa before moving the headquarters to Sioux Falls a century later.

In 2009, it relocated its longtime downtown location to Harrisburg, which paved the way for the development that now includes the Lumber Exchange Building and the Hilton Garden Inn Downtown.

Texas-based Builders FirstSource is the nation’s largest supplier of structural building products, value-added components and services to the professional market for new residential construction and repair and remodeling.

“This is the 800-pound gorilla, the largest building material dealer in the country by far,” Costello said. “If you look at the next, it’s a distant second.”

Formed in 1998 and traded on the New York Stock Exchange as BLDR, Builders FirstSource has approximately 570 distribution and manufacturing locations, a presence in 43 states and 90 of the top 100 metro areas.

That now includes 12 locations across South Dakota, from Sioux Falls to Rapid City. As market manager, Costello will oversee Sioux Falls, Harrisburg and a location in Tea that Builders FirstSource already owned. Schoeneman’s locations in Hawarden and Spencer, Iowa, will transition to another division of the company.

“The acquisition of Schoeneman Brothers by Builders First Source is a strategic move by the company to strengthen its presence in Sioux Falls and the surrounding area,” the company said in a statement.

“Schoeneman Brothers is known for its reliability, experienced staff and extensive selection of building materials. By acquiring Schoeneman’s Building Material Centers and Midwest Truss & Panel, Builders FirstSource has shifted from being a smaller player in the Sioux Falls market to securing a leading position, including trusses and prefabricated components.”

Last year, Schoeneman’s added Midwest Truss & Panel at its Harrisburg location to diversify the operation in addition to providing vertical integration.

The more than $10 million facility began making roofs in August, floors in September and walls in the fall.

“It’s going well. We’ve enjoyed a fair amount of success and acceptance in the marketplace from our customers and new customers,” Costello said. “We’ve seen a lot of customers who we didn’t sell to in 2023 who are buying in 2024 and not only trusses but general building materials, so it’s been exciting.”

Al Schoeneman had the vision for expansion several years ago after seeing how the building industry was evolving, Costello said.

“Because of the labor shortage, the industry was switching from stick frame to panelization … so we were leaking business and wanted to recapture the business,” he said. “We look at the truss plant as an offensive and defensive play. We wanted our stick business back, but we were playing offense because we hadn’t built trusses before.”

The new addition grew Schoeneman’s from about a 55-person team to nearly 115. The new employees hadn’t been on board a year yet so weren’t qualified for the ESOP, but anyone who had worked before that and qualified was included in the sale of shares.

“And there are 20 to 25 very significant participants in the ESOP — people who worked for Al for over 40 years … and those are the largest benefactors of the ESOP, and that’s not only in Sioux Falls but Harrisburg and our Spencer yard and Hawarden,” Costello said.

“Over the years, Al has gotten to be a very small minority owner, and that was the plan.”

Schoeneman, who’s the fourth generation to lead his family’s business and has no children, took over for his father, Cecil, and uncle, Herb, who worked in the business into their 90s.

When Schoeneman decided to convert the business to an ESOP in 2016, the advisers assisting with it “said they had worked on hundreds of ESOPs and had never seen one as generous as this,” Costello said, adding that the way in which the sale of shares set those long-time employees up for “a really enhanced retirement thanks to Al” was what Schoeneman had intended.

Schoeneman, who is known to be understated and occasionally refer to himself in the third person, said simply it was “absolutely” what he’d wanted.

“Al has enough other incomes coming in that he doesn’t need it,” Schoeneman said. “They made the company what it was.”

The acquisition positions Schoeneman’s to meet a future that increasingly is driven by access to materials and technology, Costello said.

“I don’t think there’s anybody in our industry that doesn’t see if rates start dropping again that there isn’t going to be a material shortage,” he said. “We are way underbuilt in our country for housing.”

Being part of a larger company “just provides a big security blanket” when it comes to securing materials, he said.

Additionally, “they have an extensive online platform for contractors and outside sales reps … and that sophistication is something we could never develop internally,” Costello said. “You think about where that contractor will be five and 10 years down the road and how we’ll do business and interact, and it’s not the way we’ve done it the last 20 years. It’s got to evolve.”

Mergers and acquisitions in the lumber and building material sector have “never really slowed down, despite the volatility of interest rates. Great companies continue to find excellent acquisition values, and acquirers clearly have the liquidity to add to their portfolios,” John Wagner, a managing director at 1stWest Mergers & Acquisitions, the advisory firm that represented Schoeneman’s in the deal, said in a statement.

“In this case, Builders FirstSource has obtained a real gem in its acquisition of Schoeneman’s, a company whose top-shelf reputation stretches far and wide.”

The deal still requires approval from the IRS and will be about a yearlong process to finalize.

“Nothing is changing in the near term,” Costello said, adding he’s hoping the Schoeneman name also will continue.

“They identify the brand Schoeneman has in the community.”

As for Schoeneman himself, “I was kind of thinking of retirement,” he said. “I told Pat sometime this year because we were putting in a new computer system and Al is not that computer tech. So I didn’t want to go through that. I still want to be here advising and helping work on projects with some of our great customers, and I will still be doing that — just not on the payroll.”