Beacon Roofing Supply, Inc. (Nasdaq: BECN) (“Beacon”), the largest publicly-traded distributor of residential and commercial roofing materials and complementary building products in the United States, today announced that it has entered into a definitive merger agreement to acquire Roofing Supply Group (“RSG”), a leading roofing products distributor owned by investment firm Clayton, Dubilier & Rice (“CD&R”), in a cash and stock transaction valued at approximately $1.1 billion.

Under the terms of the agreement, RSG shareholders will receive approximately $286 million in cash and $291 million of Beacon common stock, and Beacon will refinance approximately $565 million of RSG's net debt. Beacon will fund the cash portion of the purchase price through a new ABL Revolver, Term Loan B and a senior unsecured bond offering. The transaction is targeted to close on October 1, 2015.

Headquartered in Dallas, Texas, RSG distributes roofing supplies and related materials from 83 locations across 24 states, including the key Western and Southern markets of California, Florida and Texas. The acquisition also brings Beacon to the Pacific Northwest with branches in Seattle and Spokane. As a result of the acquisition, Beacon will grow to approximately $3.7 billion in revenues and have 356 branches in 45 states and six provinces across Canada. In addition to benefitting from an expanded geographic footprint, Beacon will be able to provide greater customer service through more diversified product offerings across its newly-acquired and existing branches. The transaction is expected to be immediately accretive to adjusted earnings per share (“EPS”) and to generate annual run-rate synergies of approximately $50 million. The tax-efficient transaction structure is expected to enable Beacon to retain approximately $130 million in net operating losses, existing intangible deductions of approximately $190 million and transaction-related deductions of approximately $50 million.

Robert R. Buck, Chairman of Beacon’s Board of Directors, emphasized the strategic fit of the RSG acquisition and the compatibility of the two companies and stated: “We long have believed that a combination of Beacon and RSG would be tremendously beneficial to our shareholders, customers and employees. RSG complements Beacon geographically, especially in the Southern and Western United States, and RSG’s management shares Beacon’s belief that success comes from dedication and loyalty to customers and employees. We are pleased that CD&R will become a major shareholder. This is a momentous event for these two great companies and for the future of the roofing distribution industry.”

Paul Isabella, Beacon’s President and Chief Executive Officer, added: “I am thrilled to welcome RSG to the Beacon family. Our company will benefit greatly by joining forces with RSG’s talented and experienced employees who have developed strong and enduring relationships with customers in their local communities. By building on these relationships, Beacon will drive strong growth, bolster our existing customer base and enhance our position across key regions in the South, West and the Pacific Northwest. The acquisition also adds scale to our commercial business and expands our capabilities within our complementary businesses. This acquisition is a milestone in the long and successful history of Beacon.”

Peter Arvan, RSG CEO, said: “By joining forces with Beacon, we create a market-leading enterprise with exceptional prospects, bring together two highly experienced and proven management teams, and add capabilities to provide our valued customers with the highest levels of service. It’s a great moment for RSG, representing a strong validation of the business the team has built, as well as a compelling opportunity to capitalize on the strengths of both companies.”

CD&R Partner Nathan Sleeper said: “We are very excited about this merger and believe that, together, RSG and Beacon will have a very strong foundation for long-term value creation. We look forward to playing a constructive role in helping to realize the full benefits of this strategic combination.”

Strategic and Financial Benefits of the Transaction

• Expanded Geographic Footprint: The combined company will operate 356 locations with an expanded distribution platform that affords greater access to the less seasonally-sensitive Southern and Western U.S markets. The acquisition also provides Beacon with an entry into the Pacific Northwest, as well as additional branches in highly attractive, dense markets including California, Florida and Texas.
• Greater Product Diversification and Customer Service: The transaction strengthens Beacon’s position as the largest public roofing materials and related products distributor in the U.S. with revenues of approximately $3.7 billion. Beacon will be better-positioned to serve existing and new customers with a larger fleet for deliveries and service readiness, greater scale of residential and commercial business, increased offering of complementary building products across RSG’s locations, enhanced engineering capabilities, and greater financial resources to develop and implement new customer service initiatives, such as e-commerce.
• Aligned Growth Strategies: Both Beacon and RSG employ “Greenfield” growth strategies to expand branch count and geographical reach, and the respective organizations have benefited from this strategy. In total, the companies have opened 72 Greenfields since 2013, which will contribute to an enhanced organic growth rate in future years. Both companies have grown through a similar approach to acquisitions and a focus on consistent improvement in organic growth.
• Immediately Accretive to Beacon’s Adjusted Earnings per Share: Beacon expects the acquisition of RSG will be immediately accretive to adjusted earnings per share and meaningfully more accretive thereafter.
• Significant Cost Synergies Expected: Beacon’s acquisition of RSG is expected to generate approximately $50 million in annual run-rate synergies. Run-rate cost savings represent approximately four percent of RSG’s 2015 sales and are consistent with similar industry mergers.
• Tax-Efficient Structure: The acquisition, which is being structured as a reorganization to achieve optimal tax treatment, is expected to enable the combined company to retain all advantageous tax attributes associated with RSG, including approximately $130 million in net operating losses, existing intangible deductions of approximately $190 million and transaction-related deductions of approximately $50 million.
• Strong Financial Profile: The combined company will enjoy ample liquidity, with approximately $350 million of available capital. Following the close, rapid de-levering is expected to result from the realization of cost savings, earnings expansion, strong cash flow generation and low ongoing capital expenditures. The capital structure will take advantage of the current low interest rate environment and establish a low weighted average cost of debt.

Financing and Approvals 
The transaction is targeted to close on October 1, 2015 and is subject to the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions.

Beacon will finance the transaction with a new ABL Revolver, Term Loan B and a senior unsecured bond offering.

Management and Board 
Following completion of the transaction, Mr. Isabella will continue to serve as President and Chief Executive Officer of the combined company, and Mr. Buck will remain Chairman of the Board of Directors. Mr. Arvan will continue to manage the RSG business and report to Mr. Isabella. Philip Knisely, Chairman of RSG and an Advisor to CD&R Funds, and Mr. Sleeper will join the Board of Directors.

Advisors 
Citi is serving as financial advisor to Beacon and Sidley Austin LLP and Schiff Hardin LLP are serving as its legal advisors. Deutsche Bank Securities Inc. and Goldman, Sachs & Co. acted as financial advisors to RSG, and Debevoise & Plimpton LLP is serving as legal advisor to RSG.

Citi and Wells Fargo are acting as Joint Lead Arrangers on the debt financing.

Conference Call and Presentation 
Beacon will host a conference call to discuss the transaction today, July 27, 2015, at 8:00 a.m. Eastern Daylight Time (EDT). The live webcast of the call, along with a webcast replay after the call, can be accessed at http://ir.beaconroofingsupply.com/events.cfm (the "Events & Presentations" page of the "Investor Relations" section of the Company's web site). There will be a slide presentation available on that page of the website as well. For those unable to connect to the Internet or who may wish to ask questions, the conference call dial-in number is 844-298-9821 (toll-free) or 234-386-2869 (international). To assure timely access, call participants should call in before 8:00 a.m. EDT.