The Acquisition Market is Heating Up

Over the past month or so we’ve seen a number of intriguing acquisitions occur in the electrical industry.  Types that could have further reaching implications.

Why Sell

And there seemed to be some trends relating to

• Succession planning
• Generational issues
• Willingness to invest
• Competitiveness of market and, perhaps
• Concerns about longer term outlook (so get while can)

Why Buy

From a buyer’s perspective these represented opportunities to:

• Leverage infrastructure and scale
• Diversify geographically
• Expand product offerings
• Enter new markets
• Bulk up in a product category

Recent acquisitions:

• USESI acquired Franklin Electric, according to multiple manufacturer contacts.  Franklin Electric was a mid-sized electrical distributor serving the southern NJ and Philadelphia markets.  Franklin had purchased Griffith Electric in 2016. Both are IMARK members.
  • This is USESI’s third acquisition in two years and second this year, indicating a desire for continued growth to either further take advantage of its central distribution centers for its platform companies and/or other potential platforms in different geographies.
• Locke Supply, with corporate based in Oklahoma, acquired RESCO (Richmond Electrical Supply), based in Richmond, VA.  RESCO, a three-location distributor, had been owned by a private equity firm. This is Locke’s first foray outside its marketplace.  It can be assumed that they will want to “backfill” geographically either through acquisition or opening other small locations.  Both are AD members.
  • For those not familiar with Locke, prior to the acquisition they had 165 stores in 5 states and sell electrical, plumbing and HVAC supplies.
  • Given Locke’s diversification, it is unknown if they will be looking to diversify or focus in a specific vertical market as they backfill.
• EIS, the Electrical Specialties Group of Motion Industries, was sold to Audax Private Equity. EIS is a well-established and growing North American fabricator, converter and distributor of electrical process materials, wire, cable and assemblies serving end-user segments in electrical power and related markets. It provides more than 110,000 SKUs from 38 branches and four fabrication facilities to more than 20,000 customers across North America.
  • According to the press release, EIS has ” a proven M&A platform” and Audax plans to provide it the necessary resources to expand. So expect more acquisitions from EIS.
  • According to MDM, in 2017 EIS had revenues of $715.6 million
• Kaman Corp sold its industrial division to a private equity firm for $700M. Kaman’s distribution business sells bearings, electro-mechanical, power transmission, motion control and electrical and fluid-power parts. In 2012 Kaman purchased Zeller Corporation and became a Schneider Electric distributor.
  • Kaman’s distribution business had 2018 revenues of $1.1 billion. It’s unknown what percent of sales are electrical, however, if the new business desires to become more diversified it could acquire other automation distributors or industrially-oriented electrical distributors.
• Omni Cable being purchased by DOT Family Holdings (the Tracy Family), which owns a $6 billion food service redistributor among other reseller / master distributor businesses.
  • DOT owns Grabber Construction Products (fasteners and related accessories used by contractors specializing in walls and ceilings for residential and commercial buildings), Reliable Parts (appliance parts, accessories, filters, detergents and related products), TAGG Logistics (nationwide provider of e-commerce order fulfillment) and Triad Technologies (distributor of fluid-power, fluid connector, hydraulic, pneumatic and seal products).
  • DOT uses a “buy and hold” strategy.  Given Omni’s diversification into circuit breakers, perhaps Omni will take a page from DOT Foods and broaden its product offering over time, as the electrical industry really doesn’t have a true, multi-product category, master distributor.
• NSi diversifying and purchasing Bridgeport Fittings, which originally was rumored to be purchased by others. This is NSi’s second acquisition of the year (prior being Platinum Tools) which infers that NSi’s private equity owner is committed to the electrical space.  This is a case of two quality, innovative, entrepreneurial-run companies coming together.  Both companies have reputations for being “easy to do business with” from a distributor perspective.
  • It will be interesting to see how NSi goes to market with two strong brands and, in a number of markets, two strong rep agencies.

And, from what we’re hearing in the market, there are other manufacturer and distributor deals being discussed … and a number of regional distributors looking to make an acquisition (albeit “at the right price”).  Some who are interested in selling are asking for a “rich” multiple which may mean natural synergies (geographically) may not occur and possibly more private equity money gets involved in the market.

It also looks like “big” money is being spent “rest of world” in the LED space with KKR purchasing NVC Lighting and OSRAM attracting bids in the billions.

With operating costs increasing, customers becoming more discriminating in whom they buy from and how they want to purchase, competition increasing, and the need for growth (for publicly held manufacturers) in a slow market … and private equity firms having much cash to invest, the last four months of the year could result in more deals.

On the distribution side it appears that mid-sized companies is where the action is with few interested in small distributors unless there is a compelling niche (market segment or geographic) as start-ups are just as easy to do unless there is a personnel reason. With private equity involved, some large distributors could be in play.

Manufacturers are typically different and relate to investors seeking to exit the business or a generational change (which is also sometimes that the current generation has difficulty in taking the business to the next level / has no succession in the business.)

The only constant is change.