Rexel Acquires Mayer, Increases Southeast Presence

Last week Texas played Alabama, and won twice. Not only did Texas A&M beat Alabama Saturday night but earlier in the week a Texas-based distributor shocked the electrical industry and “won” an Alabama distributor as Rexel agreed to purchase Mayer Supply.

The deal seemingly came out of nowhere to pretty much everyone in the electrical industry when it was announced Wednesday morning.

Here’s the Rexel press release with a video that overviews Mayer.

In the words of one Mayer supplier, “Holy crap”.

A Good Deal for Rexel

From an outside view it appears to be a very good deal for Rexel.  They gain:

• A $1.2 billion distributor
• Lots of locations in the economically growing Southeast coupled with a solid set of locations in mid and western Pennsylvania (former Hite locations.)
  • Overall there are 68 branches in 12 states.
• A large platform with a strong distribution equipment brand (Schneider Electric.)
• A consistent, well-regarded by the contractor community brand name.
• A company that has invested in technology and recently (within the last year) deployed a new commerce-enabled platform.

While Mayer is the third largest woman-owned business in Birmingham, AL and presumably earned some business as a woman-owned business, it may lose the designation and have some business in jeopardy.

And it appears that the purchased the business at a good price. While $456 million is a lot of money, from a percentage viewpoint it appears to be a discount. This represents 38% of rolling 12-month sales through August 2021. If discounted for 2021 assuming 20% for price increases, it would still be only 45% of sales. And it is expected to be accreditive to Rexel’s earning per share in year 1, value creating in year 2 thanks to “targeted synergies of about 1.5% of acquired sales as of year 2” (which is about $18M.)

Based upon a number of recent deals, this appears to be a significant discount, especially for a strategic acquisition. According to some, eight to nine digits theoretically could have been left on the table.

A Shocker

The deal shocked many given that:

• Mayer management, over the past few years, emphasized how the company was setting itself up, and the “family” for the involvement of multiple generations.
• Investments had been made in technology (ERP and eCommerce) as well as diversification by investing into its industrial and services business.
• Mayer management was actively involved in highly visible industry associations
• And Mayer management was vocal about indepedence.

Change Happens

However, perhaps there were “challenges” as one person commented “That’s a big one.  Mayer has been having issues.  Good acquisition.”

Perhaps there were hindering issues from COVID’s business disruption shortly after they acquired Hite? Perhaps COVID further affected Mayer after the spring of 2020 when the company reportedly lost 20% of its workforce (replacing talent / experience is difficult)? Maybe there were family issues or the challenges of continuing a family business became visible?

According to sources, it appears that Mayer did not solicit proposals from all of the largest industry acquirers. Given its size, location, and alignment with Schneider, it could have been an interesting opportunity for CED, Sonepar, Border States and perhaps a few others (even if it could be a stretch, but at only $456M, possibly manageable.) Reportedly there is an opportunity for senior management to stay involve for the next five years and possibly could increase what the family will realize on the business.

Perhaps, by maintaining the Mayer name, perhaps for family legacy for a time, and leadership staying in place for a bit (with a financial upside), Rexel wanted another platform (maybe for other Schneider acquisitions? Maybe it eliminated the need to integrate the business into the other Rexel platform / regions?

Some would not be surprised to see the Hite branches be transferred to Rexel Northeast to take advantage of some synergies. Others have commented about some branch pruning, especially in Houston, maybe Florida.

Some have commented about the potential impact on IMARK given Mayer’s visibility but, “it’s only one member”. Given that the deal is expected to close the first of the year, it’s assumed that Mayer will leave the group at that time.

Takeaways

Could this, in the words of one who said, “Here’s my sign” and another who commented “this has got to be a catalyst to others to sell” accelerate the pace of distributor consolidation?

In July we commented that we expected an accelerated M&A market the second half of the year. We’ve recently seen Reulet sell to Teche, Springfield Electric sell to Sonepar, HESCO sell to Win Supply, now Mayer sells to Rexel and there may be some smaller ones we’re forgetting (sorry).

This deal may get some distributors, and manufacturers, to reconsider scenario planning (in this article we mentioned that Rexel could be on the acquisition trail as well as some others) given the potential acceleration of consolidation of revenue. Consider what percent of the industry is controlled by the top 12 distributors today? What will it be in 2030? One industry thinker shared that he’d guess “less than 12 will control 80% of the business.” How does that change the industry (perhaps a macro version of the Canadian electrical market?)

The last major surprise was Rexel purchasing Platt. Question is, what’s the next major deal to occur in the industry?