GMS Inc. announced a definitive agreement to acquire 100 percent of the equity interests of WSB Titan for total consideration of approximately $627 million (C$800 million). Headquartered in Toronto, Titan is Canada’s largest gypsum specialty dealer serving the residential, commercial, and institutional markets with key products including wallboard, insulation, lumber, roofing, steel framing, and other complementary building products.

The distributor was founded in 2009 through the partnership of Watson Building Supplies and Shoemaker Drywall Supplies, two trusted wallboard distributors with roots dating back to the 1970s, and expanded the platform in 2015 through the acquisition of Slegg Building Materials, a family-run wallboard and building supplies distributor formed in 1947.

Mike Callahan, President and CEO of GMS, said, “The acquisition of Titan further extends our leadership position as the largest wallboard distributor in North America with significant scale advantages and a well-balanced portfolio built for growth. The combination also provides us with a market leading position in Canada and the foundation to support future opportunities in this highly fragmented market while creating opportunities to share best practices across our operations. I have been extremely impressed with the quality of Titan’s management team, the excellence of their operations, and their steadfast commitment to service quality, which has resulted in market leading margins and a solid track record of organic and inorganic growth. With a strong cultural fit and shared focus, we are confident this combination will be beneficial to both companies.”

Doug Skrepnek, CEO of Titan, added, “Like GMS, we have built our business through a differentiated service model that fosters loyalty and long-term relationships with top-tier customers and suppliers. This shared commitment, coupled with the opportunity to join forces with another industry leader in North America, makes this combination extremely compelling for Titan’s stakeholders. While we have individual strengths that we plan to leverage across the combined platform, having shared values and similar cultures makes this a natural combination. On behalf of everyone at Titan, we are looking forward to joining the GMS team.”

GMS believes that the acquisition of Titan will result in several strategic and financial benefits, including:

•             Expansion of Scale and Footprint in North America: Adding the largest Canadian wallboard distributor to GMS’s existing U.S. footprint creates a market-leading North American GSD platform with over 240 locations across 42 U.S. states and five Canadian provinces.

•             Geographic Expansion into Attractive Market: The acquisition of Titan provides an entry point into the highly attractive, fragmented Canadian GSD market. As an attractive acquirer in Canada with a proven track record of organic and inorganic growth, having completed five transactions and opened four greenfields since 2009, the addition of Titan is expected to allow GMS to participate in further M&A and greenfield opportunities throughout the Canadian GSD market.

•             Well-Balanced Platform for Growth: The combination will diversify GMS’s product offerings and create significant opportunities for product expansion in both the United States and Canada while enhancing the Company’s ability to serve its customers. In addition, acquiring Titan positions GMS as a key North American distributor of insulation, while further accelerating growth across the combined company’s product portfolio.

•             Complementary Cultures & Commitment to Customer Service: Titan serves as a value-added partner to a broad base of over 14,500 customers, including some of the largest wallboard interior finishing installers in Canada. Titan’s experienced management team has earned its reputation for operational excellence and service quality, which underpin Titan’s strong culture and are shared by GMS.

•             Expected to be Immediately Accretive to Adjusted Earnings per Share and Adjusted EBITDA Margin: Titan’s scale, market position, operating platform and value-added services have driven market leading Adjusted EBITDA margins of 14.7% for the twelve months ended January 31, 2018. We estimate that the combination would have increased GMS’s Adjusted earnings per share by approximately 25% and Adjusted EBITDA margin by over 100 basis points on a pro forma basis for the twelve months ended January 31, 2018.

•             Meaningful Cost Synergies: GMS expects to capture cost synergies of at least $10 million within the first full year following the close of the transaction, driven largely by purchase synergies associated with the combined company’s enhanced scale. These estimates do not include any expected benefits associated with the sharing of best practices or product expansion opportunities.

Mike Callahan will continue to serve as President and CEO of the combined company, which will remain headquartered in Tucker, Georgia. Doug Skrepnek will become President of GMS Canada, reporting to Mr. Callahan.

Under the terms of the agreement, GMS will acquire 100 percent of the equity interests of Titan for approximately $627 million (C$800 million) from Titan’s current management and TorQuest Partners. For the twelve months ended January 31, 2018, Titan recorded revenues of approximately $459 million and Adjusted EBITDA of approximately $68 million resulting in a transaction multiple of less than 8.0x Adjusted EBITDA, including the impact of estimated cost synergies.

GMS has secured fully-committed debt financing for the transaction and per the terms of the agreement, existing Titan management, which is committed to leading the combined company’s Canadian business going forward, will roll over $35 million of their current ownership position into GMS stock. GMS remains focused on maintaining a prudent capital structure and a strong financial position with sufficient flexibility to fund ongoing business operations and acquisitions. The transaction is expected to close late in the second calendar quarter of 2018 and is subject to the expiration or termination of the applicable waiting periods under the Canadian Competition Act, as well as other customary closing conditions.

Barclays Capital Inc. is serving as GMS’s exclusive financial advisor, with Jefferies LLC acting as Titan’s exclusive financial advisor. Fried, Frank, Harris, Shriver & Jacobson LLP is serving as lead legal advisor. Barclays Bank PLC, Credit Suisse AG and Credit Suisse Securities (USA) LLC are providing the financing as joint lead bookrunners.