Are You Getting Your Shopping List Ready?

It appears that companies in a number of industries are starting to shop … for other companies. Witness Dell buying Perot, Kraft making an offer to Cadbury, Emerson buying Avocent, Lewis Goetz buying International Gasket, HD Supply and ORCO Construction or closer to home Hubbell and Burndy, Schaedler Yesco and first Service Electric and then Gertz Electric, Inline and L&L Electric, and plenty of other rumours, and discussions, that have been in the mainstream media.

We’ve also heard from larger electrical distributors that they are fielding many calls from potential sellers!

What does this mean?

A few things:

• Companies with cash, good cash flow, access to cash (hence good credit) and good systems (they are surviving the economic headwinds) are looking for opportunities.
• Credit is available for the right opportunities
• These companies are making strategic acquisitions … either geographic or new businesses / revenue streams.
• They are seeking growth and recognize that organic growth from mature markets may be a zero sum investment game.
• Owners of companies that have struggled through the economy, many for more than a year, are tiring of either trying to eke out a profit (or achieve breakeven)
• Some owners, albeit smaller distributors, don’t want to continue investing personal funds back into the business. Some of these people are looking forward and considering the investments that they would have to make to continue the business or saying “if the market isn’t going to get much better, how much more am I willing to risk.”

The continuing challenge is that some of these companies still think they are worth more than they are! Some think 5-7 EBITDA when the market may be closer to 3-4, if that depending upon the quality of the inventory; the rate of business decline; quality of staff, facilities and much more. In a market where historically companies sold for 20-25% of sales, today it might be 15%, and in some cases it may only be an asset sale!

Coming to this reality is unfortunately hard for many. The window of opportunity closed. For some it may be a case of getting out. Waiting for the next window will take much time, patience and money. Between generational issues and investment issues, some will question if it is worth the effort to “stick it out” (while possibly risking it all.)

And the acquirer market has changed. Many of the national chains have their own challenges and have pulled back (closing locations). Potential national acquirers, in our opinion, could be Sonepar, CED and possibly Crescent. After that, it will be the larger independents (and yes, Inline is large for their marketplace.)

It may end up being a “new world” that creates new opportunities for some, different channel challenges for manufacturers and another level of efficiency within the channel (although NAED will probably be left with fewer members, as will the marketing groups – but they’ll retain the revenue).

The key is deciding what your strategic moves, as an acquirer or seller, could be.

The upcoming meeting season will be interesting with A-D, IMARK and the NAED Eastern coming up within 30 days.

Who is on your list? (and yes, everything is confidential!)