TWST: We'd like to begin with a brief historical sketch of the company and a picture of the things you are doing at the present time.
Mr. Macadam: BlueLinx is the largest distributor of building products in North America, with 2005 revenues of $5.6 billion. We have about 3,400 employees and offer more than 10,000 different products from over 750 different suppliers; we have nearly 12,000 different customers nationwide. Our customers include building products dealers, industrial manufacturers like furniture, fixture and cabinet manufacturers, manufactured housing
producers, and home improvement retailers.
BlueLinx, originally the building products distribution division of Georgia-Pacific Corp., was purchased in May 2004 by Cerberus, a private equity group, and was run as a private company until that December, when we completed an initial public offering on the New York Stock Exchange.
We are headquartered in Atlanta, have two sales centers in Atlanta and Denver, and operate a network of over 70 different distribution facilities across North America. We are a two-step distributor, which means we buy product from the manufacturer and sell to dealers who then sell to the end-use customer. About half of our end-use customer demand is driven directly from new home construction, with the other end-use drivers being industrial applications, repair and remodeling, manufactured housing and non-residential construction. We are a critical link in the supply chain in that we make the process of getting the product to the end-user more efficient through break-bulk inventory, just-in-time delivery, one-stop shopping, and service-oriented, solutions-based selling.
We are unique because we are the largest (by a wide margin) public building products distribution company that is independent from a manufacturer. Our two largest competitors are the distribution divisions of Weyerhaeuser and Boise Cascade. Beyond that, the two-step distribution market is very fragmented. It's approximately a $50 billion market, and once you get past the fourth or fifth largest player, you're looking at companies that are well under $1 billion in annual revenue. There are literally hundreds of companies we compete with that are $250 million revenue or less.
Our strategy is to grow our specialty products business to produce the majority of our revenue. Our specialty products business, which basically consists of all products that are not plywood, OSB, lumber or rebar, offers higher margin, less price sensitivity and is well suited to our unique, centralized distribution platform, our national sales force and our solutions-based value proposition. In the third quarter of this year, specialty products were about 45% of our revenue and 65% of our gross margin, and structural products were 55% of our revenue. We would like to grow specialty to over 60% of revenue over the next few years.
Our plan to grow the specialty business is built on four key initiatives. One is to partner with manufacturers to introduce and roll out new products across our system. Number two is to expand existing specialty products into new geographic markets where we already have a business presence. Third is to grow our share in under-represented segments, such as industrials where today we only have a 2% to 3% market share. As a comparison, in the dealer business our share is more like 11%-12%.
And finally, the fourth lever would be through acquisitions where we will acquire companies that are more specialty product focused. In the past 14 months, we have completed two acquisitions. The first, in July 2005, is a company on the West Coast called Lane Stanton Vance, which is a high-end millwork and moulding distributor that's 100% specialty products. And then in July of this year we acquired a company in Texas called Austin Hardwoods, which is a specialty distributor of hardwood lumber and related products.
We think that the key indicator of our progress in growing specialty is our unit volume growth of specialty products versus the unit volume growth in the overall end-use markets. And so our plan is to outperform our end-use markets, even in the current business environment, which is, as you know, slowing. It has slowed dramatically due to pressure on housing starts. But by outperforming the end-use markets, we are taking market share. So our strategy for specialty is to continue to grow share by executing on the four initiatives I just discussed.
Our strategy on the structural product side, which, again, is OSB plywood, lumber and rebar, is to try to mitigate the volatility of price fluctuations by managing these for profitability; keeping our inventories very lean and maintaining our margins in a falling price environment. So that's the summary of our strategy and our overview of our company.