March Came in Like a Lion and Western PA Distributors Were Acquired

The proverb “March comes in like a lion, goes out like a lamb” was in full swing last week … weather-wise and for the electrical distribution industry.

Last week saw the east coast’s second northeaster snow storm and while there was bad weather, two acquisitions were finalized.  It was announced locally that Mayer Electric acquired The Hite Company and that CED acquired Tri-State Supply Company.

 Mayer Acquires Hite

This was the first deal we were advised of by a few distributors and manufacturer reps in the local marketplace. All were surprised that Hite sold and that Mayer was moving north. In some cases the outreach was to ask about Mayer.

Hite, which is a Square D distributor based in Altoona, PA and operations that span throughout western Pennsylvania and a location in West Virginia and operations in western New York, is a well-diversified

company, has revenues in excess of $173M (EW 2017 Top 200, which is 2016 sales).

According to a note sent from Hite’s Ron Eberhart, Executive VP of The Hite Company: (Hite Announcement Regarding Partnering with Mayer)

“For almost 70 years, The Hite Company has delivered exceptional value and continued growth for our supplier partners in the PA, WV, and NY markets. In return, you have extended continued support for our growth plans and supported our company expansion.

As we continue to grow our business, we believe that a larger geographic presence and additional resources will be necessary to compete in the future. The shareholders of The Hite Company believe that our future success would be stronger if partnered with a strategic partner that offered a larger geographic presence and larger resources. We found that partner in Mayer Electric Supply.

Many of you who are already very familiar with Mayer Electric understand their family-owned structure and culture is much like ours. It was a natural fit. Effective March 26, 2018, The Hite Company will become the Northeast Region of Mayer Electric Supply and will operate as The Hite Company, a Division of Mayer Electric.

We are very pleased to have found a strategic partner and look forward to many years of continued growth in the northeast market. The Hite Company will operate essentially unchanged, with purchasing and payables remaining centralized in Altoona, PA.”

A local distributor commented, “This was my biggest fear, that a strong independent would purchase them. I have been hearing rumblings of this over the last year. I welcome the move as far as I still only have to worry about one company. If Mayer would have opened up their own branches that would have been worse. Not sure how much it will affect us initially. It will be the same Hite people working there, I don’t think Mayer will transfer 50 people to PA to work. I’m sure they will streamline and enhance their inventory, which may affect us………it will be interesting.  Curious to see how vendors/reps will handle this.”

And a local rep said, “The dynamics in western Pennsylvania changed overnight. We go from local, independently owned distributors to people from outside the area running the business. We’ve been working with the local distributors to get POS information so we can effectively compensate our people as these companies cross territories. I can imagine how hard it will be to get good reporting now.”

It’s interesting that he mentions “Mayer’s Northeast Region.”  This could infer a couple of things:

• More acquisitions are planned to either move eastward or perhaps fill in the space between Pennsylvania and southern Virginia. Square D distributors would be the target.
• Mayer, through Hite, will open locations organically.

Given when Mayer left AD a few years ago, perhaps an element of them joining IMARK was a distributor evaluation. It had been rumored that Mayer sought to expand north, perhaps up to Philadelphia.  If they were considering the Square D distribution landscape, perhaps they identified that many key IMARK distributors along the Northeast / MidAtlantic corridor are Square D distributors?  Joining IMARK could have been, or become, a networking environment to cultivate longer-term acquisitions … as is expected from Crescent Electric (both are ways to keep revenue within the group.) Or it can be completely coincidental and the theory is revisionist history.

Either way, the Hite acquisition could be very strategic for Mayer.  Contiguous distributors could look at this as a potential acquirer (in addition to national chains or maybe mergers).

CED Acquires Tri-State Supply Company

A surprise to many in the western PA market was Tri-State Supply Company selling to CED. The surprise wasn’t that Tri-State was for sale, which had been rumored for awhile as they are a Rockwell Automation distributor and, as a smaller one, always has had growth limitations and it’s assumed Rockwell wants larger distributors to support its initiatives.

According to public sources (EW and Manta.com), Tri-State’s sales were in the $65-75M range. According to sources, the company is very strong in the industrial segment powered by mining, oil and gas industry with some commercial / construction business.

CED, through its Gateway Region, is one of the largest … if not the largest, Rockwell Automation distributor in the country. While perceived as a wild card for this acquisition, it does border CED’s Mosebach district / division, which has Rockwell.

From a strategic viewpoint, while each CED business operates as a separate profit center, it also places it closer to other independents who may want to exit at a point in time.  Another interested, contiguous, potential acquirer can only help increase the value of some of those companies (assuming they have strong financials.)

With the Rockwell Executive Alignment Meeting and Partner Network Conference being held this week in Orlando, distributors will be learning more about Rockwell’s upcoming plans.  There has been much talk about the next round of authorization appointments and the inherent requirements, which typically improve the quality of their distributors but also requires investment.  While it is doubtful that Rockwell will terminate anyone (for legal reasons), those without succession plans, a willingness to invest (and knowing how to leverage these investments for their non-Rockwell business) or without scale may accelerate plans to leave the business, leaving Rockwell with fewer, but larger, distributors.

So, while both Mayer and CED may allow their acquisitions to operate “as normal”, the central / western PA market now has two companies with deeper pockets.

Thoughts on

• How this will change those companies?
• The competitive environment?
• And on the acquisition market?