3G’s

No, not a wireless network, but some thoughts on GE, insights from Graybar and emerging opportunities for generational exit strategies.

• GE and GE Security

Recently it was announced that GE is seeking to sell its GE Security group. As many electrical distributors know, this also includes Edwards Signaling, which GE acquired in late 2004 for $1.4B. According to analysts, they expect the selling price for this business to be about $2B for a division that had 2007 revenues of $1.7B.

This announcement comes on the heels of GE and Fanuc dissolving their GE Fanuc relationship, with both parties parting with various assets.

Given GE’s recent financial challenges due to GE Capital and the company’s desire to invest in faster growing industries (or impatience with core businesses), could this mean 1) that GE is selling the security group due to loans coming due? 2) the
need to divest to generate capital for other divisions? 3) a lack of interest in
electrical infrastructure manufacturing? or 4) something else.

If the issue is a desire to adjust its portfolio, could this be a precursor to further discussions about selling GE Consumer and Industrial (lamp, gear, appliances), which you may recall was on the market last year (but they couldn’t get a high enough price).

Graybar and SEO

The website manager from Graybar had some interesting insights regarding TED Magazine’s website rankings. You can read his posting here. Essentially he says that the web rankings are based upon backlinks, not customer usage (page views or hits) or any other customer-oriented metric. TED now acknowledges that its ranking is based upon backlinks (but they still call it a SEO Ranking Report, which is
misleading).

In managing your site, traffic is more important than backlink rankings. It’s not important where your site is linked if there are no customers there.

• Generational Opportunities?

It appears that the M&A market may be slowly coming to life. While major companies are starting to make acquisitions (i.e. Kraft’s endeavor regarding Cadbury), there are some acquisitions occuring in the industrial distirbution space and we’ve heard of a couple of potential electrical deals.

The issue is the value of the business.

In each successful acquisition, the acquirer is a strategic buyer with the ability to self-finance a significant aspect of the purchase.

What does this mean for many smaller companies? The industry, while beginning a new cycle, is also going to undergo a generational change. Many smaller companies are run by individuals who started, or inherited, the business many years ago. For many, there is no succession plan. And the future looks “frustrating” with slow / no growth, margin deterioration, the need for increased investment (technology, market segment pursuit), reduced funding from manufacturers, personnel challenges , increased health care costs and more.

The question becomes, do you try to quickly enhance your business practices and find a strategic buyer, continue to run the business as a cash flow business or consider “hope” as your strategy? If you’re in this situation, give us a call.