Private Equity Invests in Fittings Supplier

As reported by Electrical Marketing, Sigma Electric, an OEM supplier to a number of name brand manufacturers in the electrical industry recently received a significant investment from Goldman Sachs.

The company, an Indian manufacturer of fittings in zinc, iron, copper, transformer connectors, aluminum conduit bodies, and more received $172M in funding.

While Sigma may not be known by many distributors, U.S. operations are based in Raleigh, the company is known by key players in the industry, and some DIY companies. Given that its products are viewed as commodities, for Goldman to receive a return on their investment, it may require Sigma to:

• Seek new channels for its products – be they other OEM customers, other DIY customers, other industries, or become a private label supplier to some/many distributors.
• Seek new products – either through product development where they can offer manufacturing efficiencies as a low-cost manufacturer of cast metal parts and assemblies
• Acquire other complementary manufacturers, hence creating a platform or a “one-stop shop” for OEMs as one industry source commented that the company, with Goldman’s backing may end up buying some older traditional US electrical manufacturers and moving production to India, eventually becoming a $500-$600 million company in a couple years.

When you think about why a Goldman gets involved, they expect a return. Paying $172M for a majority stake of a commodity-oriented company, given a 40% rise in raw material prices, how else can a return be generated…must be growth.

With this sale, Lamson & Sessions to Thomas & Betts and Universal Lighting Technologies to Matsushita, are electrical manufacturers currently in vogue? At least Lamson & Sessions was sold to a U.S. supplier who is committed to electrical distributors. Who’s next? And what does Goldman Sachs know about the raw materials / commodity production markets that the rest of us should know?