The San Diego, California-based firm will offer 13.2 million shares, including 11% insider shares, at an expected price range of $16-$18 per share. If the IPO can hit the midpoint of that range at $17 per share, CBPX will command a market value of $750 million.
CBPX filed on December 24, 2013.
Lead Underwriters: Citigroup Global Markets, Credit Suisse Securities
Underwriters: Barclays Capital Inc., BB&T Capital Markets, Deutsche Bank Securities Inc., RBC Capital Markets LLC, Stephens Inc., SunTrust Robinson Humphrey Inc., Zelman Partners LLC
CBPX is a manufacturer of gypsum wallboard (better known as drywall) and related building products. The firm estimates its 2012 market share in the United States east of the Mississippi River at approximately 17%. CBPX emphasizes cost-efficient production, with manufacturing facilities located near major metropolitan areas and sources of the synthetic gypsum that it uses for its products.
The use of synthetic gypsum reduces production costs and leads to a more consistent end product. CBPX offers a variety of products, including LiftLite, a lightweight product designed to simplify installation, Mold Defense, which protects against mold and mildew, and Weather Defense, which is resistant to both moisture and mold.
CBPX offers the following figures in its S-1 balance sheet for the period between July 26 and September 30, 2013. (Note: This unusual timeframe is a result of the firm's acquisition of the gypsum division of Lafarge North America Inc, which led to a new basis of accounting.)
Net Loss: ($4,640,000.00)
Total Assets: $757,960,000.00
Total Liabilities: $497,334,000.00
Stockholders' Equity: $260,626,000.00
For the fiscal year ended December 31, 2012, CBPX reported net sales of $311.4 million, a huge net loss of $12.8 million, and Adjusted EBITDA of $41.0 million. For the nine months ended September 30, 2013, the firm reported net sales of $287.9 million, a net loss of $2.8 million, and Adjusted EBITDA of $72.7 million.
Only a handful of drywall manufacturing firms operate in the United States. Competition varies significantly between localities, due to the high costs of transportation; firms with plants located near any given market will compete for business in that market. CBPX's competitors include USG Corporation (USG), Georgia-Pacific Gypsum, National Gypsum, and PABCO Gypsum, some of which have greater financial resources than CBPX.
In addition, CBPX aims to be a top supplier of "green" building products and currently uses coal-fired power plant byproducts, serving its trading areas with recycled materials, and helping customers achieve LEED-certified construction requirements.
Isaac Preston has served as President and CEO of CBPX since August 2013. He previously served in senior management roles with Lafarge, including President of the gypsum division and Co-President of Lafarge. Mr. Preston has over 25 years of experience in the building materials industry. His total compensation for the year ended 12/31/12 was $1,287,974 which we find excessive given the company's losses.
He is joined by CFO James Bachmann, who took his current position on January 1, 2014 and previously served as CFO of Lafarge USA and co-CFO of Lafarge North America Inc. He also served stints as Senior Vice President Finance - Investor Relations of Lafarge SA and Senior Vice President and Controller of Lafarge North America Inc., and Vice President Finance - Aggregates, Concrete, and Asphalt Division of Lafarge North America Inc. Mr. Bachmann holds a BSBA from Georgetown University.
We rate this IPO a negative at the proposed price range of $16 to $18. We would not be surprised if the price range is reduced.
CBPX may be approaching profitability, having experienced significant growth in the volume of drywall sales under its new management team but this is a company losing lots of money. We do believe its efforts to maximize cost-efficiency and tap into the growing demand for LEED-certified building materials may pay off but we think investors should wait and see until this happens.
We also are cautious with IPOs when the company is rewarding executives with very generous compensation packages when their company is losing money for the shareholders.
The fact that insiders are selling when the company is showing losses is also troubling to us.
Drywall stocks are, unsurprisingly, linked to the housing industry; as homebuilding continues to recover from the 2006 crash, CBPX may be one of the beneficiaries. However, rising interest rates and recent bad home sales in December may put a damper on their sales in 2014.