When Dominos Fall

Frequently when companies make acquisitions there are nominal changes.  In the case of Shealy and EDI, the changes have been more pronounced, creating a domino affect amongst distribution in the Carolinas.  And change is not necessarily bad.  In fact, it can be invigorating for an organization.  And sometimes companies go into an acquisition with a plan for making change to capitalize upon its strengths … and other times that changes come about based upon happenstance.

Regardless of why the change, and the affect on the companies, it is interesting to see how change can ripple through competition (and sometimes it makes one wonder if manufacturers gameplan their actions).

From what we’ve been told….

• For many years Shealy was a Square D distributor … a strong Premier distributor
• For many years EDI was a GE Energy – Industrial Solutions distributor
• The beginning of this year, Shealy acquired EDI (it was announced fall 2011), and many presumed (and it may have been stated, I don’t recall) that the new company would be Square D in South Carolina and GE in North Carolina since both companies were strong in their respective markets.

Since then …

• EDI converted to Square D (Schneider Electric).  Presumably Graybar was advised as a courtesy (which would be normal). With EDI being a strong contractor house perhaps this was part of an initiative to maintain its contractor focus while gaining a line to help build an industrial footprint?
• Since then Womack, which has 2 locations in the Charlotte MSA which were Square D houses, has converted these locations to Eaton (which they represent in other branches).  We assume WESCO was advised (since WESCO is Eaton’s largest customer), however, Mayer, which also represented Eaton in this area, was reportedly not advised.
• Mayer, feeling dissed (and presumably there were other reasons), decided to drop Eaton in South Carolina and North Carolina to picked up GE (who, you remember, lost a very strong distributor in the Charlotte market). According to sources, it was interpreted by some that Mayer felt it was taken advantage of / would just accept the new competition.

So, some thoughts …

• With acquisitions becoming more prevalent, distributors and manufacturers will need to make more decisions with whom they will partner. And some of these decisions, depending upon the aquirer, could 1) have ripple effects and 2) should be considered for the long-term.
• When making changes, unless you want to become “a change”, it is good industry relations to communicate to other committed partners that you are making a change and why.
• Taking partners for granted is not wise when they have the ability to make choices.

Based upon research we’ve conducted, switchgear (and controls), lamps and wiring devices are the three toughest line changes for a distributor to make.  Customers are loyal to these brands and the inventory and training costs can be high.  Presumably Mayer will pick up some of EDI’s switchgear business in Charlotte (find it hard to believe that GE would walk away from the business vs. support Mayer).  Changes should be made with the long-term in mind (for both parties) but understanding how the dominos will fall is key (as is anticipating the outcome and being accepting of it).

The interesting part … Mayer was the domino left standing.  Wonder how switchgear market share will change in the Charlotte market?