Confidential Draft

M&A Discussion – Builders FirstSource’s $2.5 Billion

Acquisition of BMC Stock Holdings

Presentation to the Board of Directors

Goldman Stanley
M&A Recommendation and Executive Summary

▪ We recommend pursuing this $2.5 billion acquisition of BMC Stock Holdings, but only if the financing is changed to a
Cash, Debt, and Stock mix rather than 100% Stock

▪ With the proposed 100% Stock financing, it will be nearly impossible for the deal to be accretive to Pro-Forma EPS –
even several years into the future, with full revenue and expense synergies realized

▪ Builders FirstSource can easily fund the deal with Cash (combined minimum Cash balance of $250 million) and Debt
(maximum combined Leverage Ratio of 4.0x) and use Stock for the remainder

▪ A deal structured this way will be accretive to Pro-Forma EPS, even without revenue synergies, and even if only ~40%
of the expected expense synergies are realized

▪ Additionally, existing shareholders of Builders FirstSource could see value creation of $5.00 – $10.00 per share if the
combined company begins trading between 8x and 10x FY 21 EBITDA, up from the current 7.5x multiple

▪ Finally, the deal will diversify both companies’ business segments and provide ample opportunities for expansion into
new regions

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Valuation: Summary of Discounted Cash Flow for BMC

Revenue Growth ▪ 8.7% declining to 3.5% over the 10-year projected period

Operating Margins ▪ 4.7% rising to 5.5% by the end of the 10-year projected period

Depreciation & Amortization ▪ 2.1% of revenue, declining to 1.5% by the final projected years

Capital Expenditures &

▪ 3.5% of revenue, declining to 2.0% by the final projected years
Acquisitions

Synergies / Acquisition ▪ None assumed in the baseline DCF scenario; BMC Stock Holdings valued as a
Effects standalone entity

▪ 9.7% Cost of Equity and 8.6% WACC; 1.0% range in each direction in the
Cost of Equity and WACC
sensitivities

Terminal Growth Rate and ▪ Terminal Growth Rates range from 0.0% to 2.0%, and Terminal EBITDA Multiples
Multiples range from 5.7x to 7.7x

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DCF Model Output
($ USD in $ per Share)

▪ As a standalone entity, BMC Stock Holdings appears to be slightly overvalued at its current share price of $32.22:

▪ The offer price of $36.63 is a ~25% premium to the company’s standalone implied share price from the DCF

▪ However, if we attributed 100% of the revenue and expense synergies to BMC, its implied share price would be
between $45.00 and $55.00 (depending on the discount rate used)

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Comparable Public Companies

▪ BMC Stock Holdings may be slightly undervalued based on the comparable public companies, with revenue and
EBITDA growth above the set medians, but revenue and EBITDA multiples below the medians:

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Precedent Transactions
($ USD in Millions)

▪ Precedent Transactions were selected based on U.S.-based building material supplier/distributor sellers with
Transaction Enterprise Values above $1 billion USD between January 1st, 2014 and August 26th, 2020

▪ The LTM EBITDA purchase multiple of 10.3x is in-line with the median figure from the comparable M&A deals, but the
1-day premium of ~14% and the 0.7x revenue multiple are both below the medians:

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Summary of Merger Model Assumptions

Exchange Ratio, Offer Price,

▪ 1.3125x; $36.63 per Share and ~14% Premium
and 1-Day Premium

▪ Scenario 1 uses 15% Cash, 47% Debt (8.7% coupon rate and 1% principal
Cash / Debt / Stock Mix
repayment), and 38% Stock; Scenario 2 uses 100% Stock

Treatment of Seller’s Debt ▪ Seller’s existing Debt ($336 million) is refinanced and replaced with new Debt
and Cash with the same terms; Seller’s Cash contributes to the deal funding

▪ $245 million rising to $890 million by Year 3 (~7% operating margin on these
Revenue Synergies
synergies in all years)

▪ $80 million rising to $140 million by Year 3 (3-5% of the combined company’s
Expense Synergies
Operating Expenses)

▪ 100% of fully-phased-in Expense Synergies; $141 million pre-tax charge over the
Merger & Integration Costs
first two years as a combined entity

▪ 10% PP&E Write-Up ($41 million) and 60% of the Purchase Premium allocated
Purchase Accounting
to Other Intangible Assets ($1.0 billion total), with 2/3 Indefinite-Lived

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Combined Income Statement – Scenario 1 (Part 1)
($ USD in Millions)

Combined Income
Statement assumes
full revenue and
expense synergies,
phased in over 3
years, and
accompanying
merger & integration
costs

Effects of purchase
accounting are
significant, but they
are excluded in the
Pro-Forma EPS
accretion/dilution
calculations

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Combined Income Statement – Scenario 1 (Part 2)
($ USD in Millions Except for $ per Share Figures in $ as Stated)

Interest Paid on New

Debt gradually
declines due to the
1% annual principal
amortization

Even on a GAAP
basis, the deal turns
accretive in Years 3-4
due to the synergies
and phase-out of the
merger/integration
costs

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Merger Model Output – Scenario 1 (Cash/Debt/Stock Deal)

▪ In the base case, with 100% synergy realization, the deal is ~15% accretive to Year 1 and Year 2 Pro-Forma EPS with
this mixed Cash, Debt, and Stock financing:

▪ Without revenue synergies, the deal remains accretive; it turns ~5% dilutive if the expense synergies are also removed

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Merger Model Output – Scenario 2 (100% Stock Deal)

▪ By contrast, a 100% Stock deal is close to breakeven to Pro-Forma EPS in Year 1 and ~5% dilutive in Year 2:

▪ Without revenue or expense synergies, the deal turns 10-20% dilutive in both years (and is 20-30% dilutive on a GAAP
basis)

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Contribution Analysis Output

▪ According to the Contribution Analysis (which ignores synergies and other acquisition effects), BMCH will own ~43% of
the combined entity in a 100% Stock deal, when it should own closer to ~33% based on the financial metrics:

▪ Even with synergies factored in and attributed, however, the justified ownership percentage might not change much
because both BLDR and BMCH are expected to achieve revenue and expense synergies in this deal

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Value Creation Analysis
($ USD in Millions Except for per Share Figures)

▪ While BLDR + BMCH will be closer to CARR and GWW, there

will still be a significant difference in the combined EBITDA:

▪ If the combined company trades at CARR and GWW’s

average FY 21 EBITDA multiple of 13.1x, BLDR shareholders
could realize significant value:

▪ With a more realistic outcome, where BLDR + BMCH trades at

an 8.0x – 10.0x FY21 EBITDA multiple, BLDR’s share price
could increase by $5.00 – $10.00

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Value Creation Analysis (cont’d)
($ USD in $ per Share)

▪ However, if the combined entity trades at a level in-line with its current 7.5x multiple, value may be lost:

▪ Note that FY 21, as the first full combined year, reflects net synergies of only ~$3 million due to the phase-in period and
the initial merger & integration costs

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Summary and Recommendations

The offer price is reasonable, if not a bit high, and Pro-Forma EPS accretion is
We Recommend This
#1 likely even with only ~40% of synergies realized; value creation is also
Deal
possible for the BLDR shareholders, and the IRR exceeds WACC

With a 100% Stock structure, the deal will rarely, if ever, be accretive; with a
However, the Financing
#2 mixed Cash, Debt, and Stock structure, however, the chances of Pro-Forma
Mix Should Change
EPS accretion increase substantially, even with a lower synergy realization

The Deal Depends on The cost synergies represent 3-5% of the combined company’s Operating
#3 Substantial, but Expenses (and headcount); without these synergies, the deal is unlikely to be
Plausible, Synergies EPS-accretive in any financing or purchase price scenario

Qualitative Criteria Also Both companies will gain geographic reach and access to new business
#4 Support the segments, and the long-term trends in the U.S. homebuilding market
Transaction (migration to rural and suburban areas) will spur growth rates

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