Electrical Dealtime at Christmastime

The holidays are over and its time for every retailer to put their remaining inventory on sale.  In the electrical industry it must be dealtime as “deals” were recently closed / are in discussions as a few acquisitions, or acquisition activity, was announced this week by CED, WESCO and a few companies were acquired by private equity firms

Distributor Deals

• CED acquired Frost Electric, a St Louis distributor.  According to the 2017 Electrical Wholesaling Top 200, Frost was ranked #65 with revenues of approximately $140 million (Hoovers lists Frost at $152 million).  The 109-year-old company was purchased in mid-November with the deal finalized in mid-December.  Nothing is expected to change as Frost will continue to go to market under the Frost name and leadership will continue to run the business.  Frost, however, will be leaving AD.

The acquisition of Frost continues a CED trend of acquiring well-known companies and letting them continue to run as they were.  In 2019 they acquired Nu-Lite and Sun Valley Electric. In 2018 they acquired 3E (Electrical Engineering & Equipment).  According to some of the prior owners, one of the attractions of being acquired by CED was the culture. It was the best option for the staff, owners could stay involved if they chose and CED helps them on the aspects of the business that many, quite frankly, didn’t like … the operational, credit management, insurance, etc aspects of the business.  Companies can also stay in a marketing group if they marketing group is accommodating (i.e. Nu-Lite is still in IMARK.) It’s evident that CED’s acquisition strategy has migrated over the years from primarily companies that were smaller and somewhat “challenged” to quality, brand name companies of significant size.

• WESCO Pursues Anixter

In November CD&R, the private equity firm, made a bid to acquire Anixter.  It was then rumored that WESCO was involved during the “go shop” period and had made three offers, all of which were rebuffed as “inadequate” due to the cash and stock offering.

Since the initial offering CD&R increased their all-cash offer and added a Contingent Value Offer that essentially put WESCO into play as an acquisition target as Anixter shareholders earn an additional $2.50 per share if CD&R buys Anixter and purchases WESCO or WESCO buys Anixter in the coming year.

But, in the interim, WESCO’s stock has increased, they announced that Q4 to date is up 5% (probably as a way to further pump the stock price) and increased their offer.

Prior to the latest offer the Anixter board preferred the “all cash” offer from CD&R, but was still “engaging in discussions” and expressed anti-trust concerns.

From a deal perspective … Anixter will be sold to one of these companies.  If CD&R it’s a financial play with a focus on the utility and datacom / networking market with a goal of eventually taking it public again.  Maybe they make bolt on acquisitions; maybe they spin-off elements of the business.

If WESCO wins, in our opinion, the only anti-trust concern relates to the utility side of the business.  It’s not an electrical industry issue as Anixter has a small percent of the commercial / industrial segment (as can be seen in their Q3 report).  While there are some market segment synergies for WESCO (utility as well as Anixter networking and WESCO’s CSC, for electrical distributors (other than Graybar and Sonepar’s Irby division) this isn’t much of a competitive threat.  For manufacturers, however, WESCO would have significantly more volume to negotiate “benefits” as the combined company would be over $16 billion worldwide (about 20% internationally).  And the company could bring purchasing benefits to utilities.  And yes, then there are back-office synergies.

One of these companies will receive a late Christmas gift.

On the Manufacturer Front

• ECM Industries Goes Back Home

ECM Industries, the parent of Gardner Bender (GB Electrical), King Innovation and Bergen was sold to private equity firm Sentinel Capital.  ECM Industries was the electrical division of Power Products, which originally was formed as a spin out from Actuant. Sentinel had sold Power Products three years later to another private equity firm where it was then sold to a strategic acquirer, leaving ECM as a standalone business.  Now ECM has “come home” under the Sentinel umbrella.

It can be assumed that Sentinel will seek to bolt on some smaller manufacturers as the ECM strategy is “to build an electrical products platform with a diverse mix of brands, markets, and channels” and leverage their operational and sourcing expertise.

• Sigma Electric, a contract manufacturer to many electrical manufacturers who sell fittings and weatherproof boxes, who is owned by Argand Equity, purchased Tooling Dynamics, a highly-specialized, engineered-solutions provider focused on a comprehensive range of services for high volume, precision metal stampings used for electronic and telecommunications connectivity solutions.

With a few days left in the year, what other deals will be announced?

Acquisition predictions for 2020? Who could be next year’s acquirers or, more likely, targets?