Rexel Pays Big for Platt

Last week’s announcement that Rexel acquired Platt was a surprise to everyone in the industry. And while surprising, it also made sense.

Consider:

• The selling price is 96.8% of Platt’s reported 2011 sales! (300 million euro acquisition on 310 million euros in 2011 sales, which in dollars is $382 million for ). Do you think Jay and Harvey Platt were going to leave that deal on the table? $395 million in sales.)

• Historically electrical distribution deals are closer to 25%, the best companies might be in the low 30% of sales (tough to determine EBITDA as those numbers aren’t readily available, but 4-6x EBITDA is realistic.)

  Rexel needed to do something big to show it is committed to the U.S. market and that it has faith in its U.S. management team (they’ve made acquisitions everyone else!) and Sonepar continues to grow while Rexel has been “challenged”.

• The expected increase in capital gains taxes may have further enticed the Platt’s (save an extra 5%).
• From speaking with some of the other national chains, it appears that no one else competed for the business, inferring that Platt wasn’t looking to sell and Rexel made a big, preemptive offer … which indicates some “need” to make a statement deal.

But Rexel is getting a premier company.  Platt’s reputation as a well-run organization is known throughout the industry. One would suspect that

• Platt’s CDC’s in Beaverton, OR and Ogden, UT will become CDCs for the surrounding Rexel, and maybe Gexpro, locations.  Platt was also expanding into California and further south in the Rocky Mountains. They can support Rexel locations in those areas.
• Platt University will be quickly available throughout Rexel.
• A number of Platt’s operational techniques will be adopted, inclusive of its internal customer service group.
• Its web and mobile platforms will be replicated (inclusive of its ecommerce initiative which is steadily soliciting business beyond the company’s traditional marketplace.)
• Reportedly – What won’t change:  The name of the business will continue to operate as Platt.  Platt executives are expecting new and existing Rexel locations could adopt the Platt name and/or be influenced by the Platt business model. (so what does this say about Rexel in the Northeast!)

In other words, there are a number of areas where Rexel can benefit.  And with Jeff Baker joining Rexel’s management team, it is an indication that France saw more in Platt than just revenue expansion.

According to Brad Greene, vice president of human resources and communications for Rexel Holdings USA, “The Northwest is just one of those regions where we saw a lot of opportunity to grow,” and where they had limited overlap (however, if I recall, Rexel acquired Taylor Electric in 1997.  Taylor was a quality single house location with about $40 million.  Today ????)

We solicited feedback from a number of people.  Comments included:

• “Shocked.”
• “My bet is it will take Rexel about 6 months to screw it up.”
• “Should be lots of good people on the market.”
• “Wow. That’s big.”
• “Rexel has had difficulty making acquisitions and had to do something big.”
• “Size matters. They must be high margin with all the retail locations.”
• “Big sale”
• “Big premium”
• “Paying big multiples for distribution rarely works. Between the people that leave and zillions of bad inventory, anything over a 5x is bad.”
• “Looks like HD Supply ‘stupid’ money”
• And a couple of people, presumably from Platt, posted comments on our post “Rexel Nets a Fortune”

So, some thoughts:

• As a distributor, would you sell for 96.8% of 2011 sales?  Do you believe this kind of money is available for future acquisitions? (you know there are some other superregionals who would probably jump for that type of multiplier!)
• With Rexel stating it will be looking for more acquisitions, and Sonepar looking to grow, expect these two to engage in bidding wars. Doubtful that CED, Crescent, Turtle & Hughes or others will get so “aggressive.”  So do you sell to the French?
• What percentage of the selling process involves being concerned for ones employees (especially long-time loyal ones?)
• Will Rexel learn from Platt? Or will Platt follow other Rexel acquisitions / locations (and a couple of more have recently closed)?
• As a Rexel employee, what words of wisdom would you share with your new Platt collegues?
• Are we moving to the consolidated industry?
• And as it relates to North Coast and Stoneway, the two largest independent players in the market, presumably one will eventually go to CED, the other to Sonepar … but hopefully they will stay independent for awhile.

What are your thoughts on this deal?

(and we’ll touch on manufacturer consolidation later in the week with the Eaton / Cooper and General Cable / Alcan deals)