Timber: Lumber Companies Merge Amid Crashing Prices

Just as once soaring lumber prices topple back to earth, Boise Cascade has announced its acquisition of Coastal Plywood Company for $512 million. Expected to close in the Q3 2022, the all cash deal will be funded by Boise Cascade’s current cash balances. 

Coastal sells plywood, lumber, and treated wood products across the Eastern United States, while Boise Cascade is a leading distributor of building products across the country and one of the largest producers of plywood and engineered wood products in North America.

Nate Jorgensen, CEO, Boise Cascade, touted the company’s expansion within the industry, writing in the press release, “Near term, it provides us the ability to optimize our existing engineered wood products (EWP) asset base. Longer term, we are excited to fully integrate this strategic venture and we intend to invest $50 million into our Southeast operations over a three-year period to further our EWP production capacity.”

The agreement includes a closing condition that the combination receives antitrust approval under the Hart-Scott-Rodino Act of 1976. The provision is customary, but since Boise Cascade is a strong leader in the industry and the Biden Administration has vowed a muscular antitrust policy generally, and builders have called on the president to intervene in the “skyrocketing lumber and building material prices and chronic production bottlenecks.”

Lumber prices have fluctuated violently during the pandemic. First, prices crashed to below $260 per thousand board feet as the economy screeched to a halt during the lockdowns of 2020. Lumber companies responded by scaling back production to save on costs while they expected demand to remain low. But as the U.S. economy roared back to life during Q3 2020 and boomed during 2021, the country instead faced veracious demand for lumber. While many Americans were at home more, they turned to improving their homes – and using their increased savings from stimulus payments plus reduced spending on travel and entertainment to do it. 

But just as demand returned, Canadian supplies dried up. As Tim Morris from HomeSmart sums it up for Arizona Big Media, “Because Canada had a stricter approach to COVID-19, a lot of the loggers went home and got paid more than they would risking their lives felling trees in the wilderness. So, the Canadian supply evaporated, and then demand went crazy.” This disconnect between supply and demand was exacerbated when the Biden Administration raised tariffs on Canadian lumber last November as the latest salvo in an ongoing trade war that began in 2017. 

Prices peaked at nearly 1500 in March 2022, an astounding 463% increase over the lows of 2020 – punishing everyone from builders to furniture makers with higher prices that were largely passed along to end consumers. But since March, prices have crashed again: declining 63% since the peak. The latest decline can be attributed to two causes: first, raising interest rates have increased borrowing costs and demand from homebuyers along with it; and second, consumer spending has shifted back to travel and entertainment as Americans more readily leave their homes.

According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Boise Cascade was advised by law firm Perkins Coie LLP and Coastal Plywood was advised by Hunton Andrews Kurth LLP.