Southwire – 2 Acquisitions in 2 Weeks

Earlier this week Southwire announced its second acquisition in two weeks.

Last week it acquired  OBI Partners to support its utility business and, based upon a review of OBI’s website and reviewing the press release, this appears to be a “services” play.

This week they acquired Topaz to support what was its “Tools, Components and Assembled Solutions” Group (TCAS) which is now expanding into the lighting business and will report to Brandon Moss, President of Tools, Components and Assembled Solutions.

According to the press release:

“Supporting the company’s growth strategy and building toward its goal to remain a generationally sustainable, diversified electrical company, Southwire is pleased to announce the acquisition of Topaz Lighting Corporation (Topaz) of Medford, N.Y. Serving the construction, industrial and OEM markets for more than 35 years, Topaz is a leading provider of quality electrical fittings, components, and lighting products.

Through this acquisition, Southwire will welcome employees from Topaz and will integrate their distribution network to enhance Southwire’s distribution footprint. Topaz’s existing product line will also be combined with Southwire’s rapidly expanding Components Solutions and Lighting platforms.

“We’re very excited about the addition of Topaz and are pleased to welcome their employees to the Southwire team, specifically to our Tools, Components and Assembled Solutions business,” said Rich Stinson, Southwire’s president, and CEO. “We want to provide our customers with solutions for every phase of the job. The acquisition of Topaz helps us further bolster our components offering and expand our portfolio of Lighting products and solutions.”

Southwire will now be able to leverage Topaz’s robust product offering of electrical components, commercial/industrial LED indoor & outdoor luminaires, LED lamps and traditional lighting to further enhance their ever-growing product line of electrical solutions focused on the professional.

“Our acquisition strategy puts our channel partners and end users at the center of our focus,” stated Brandon Moss, Southwire’s President of tools, components, and assembled solutions. “By being the one source for tools, components, and lighting, our partners and customers will be able to enjoy numerous advantages through our expanded product portfolio.”

What could it mean?

Some thoughts:

• As many know, Topaz is a customer-focused fittings, boxes and lighting company. The company is known for being responsive, easy to do business with, personable and very price competitive. The question becomes, “how do they maintain this competitive advantage, this “edge” or point of differentiation, while being part of a much larger company? Will they become part of Southwire or be allowed to remain a separate entity?
• The rep scenario will be interesting. How many Southwire reps already sold for Topaz? How many carry Topaz’ competitor(s)? What will Southwire do? According to sources, Southwire’s preference is to consolidate lines to one agency, but what conflict (and hence heartache) does this cause for reps? For example, some also carry ABB … a clear conflict albeit for a segment of the ABB product offering. Southwire wanting to combine also makes sense as they would probably want to “leverage / motivate” distributors to carry the entire Southwire offering (as well as gain greater share of time from their reps.)
  • Or does the new management “division” within Southwire enable them to operate with two reps in a territory?
  • Or, if you are a Southwire rep, do you make alternative decisions based upon line profitability?
• While there may not appear to be product synergies, there could be applications, and new products, that enable Southwire to achieve the goals of its Assembled Solutions (presumably pre-fab) offering.
• While Topaz was very effective in sourcing material and/or contract manufacturing, this is Southwire’s largest non-wire / cable acquisition (selling price has not been revealed albeit the number of $200-250M has been shared and the business was reportedly “balanced” with lighting and non-lighting). It will be interesting to see which side of the business is invested in for growth … and what product lines are to be added (sourced / contract-manufactured or acquired).
• And speaking of opportunities,
  • Does this increase Southwire’s opportunities with big boxes? Especially as Home Depot and Lowes continue their growth into the Pro segment and especially the residential markets. Topaz’ lighting line could also be an increased opportunity at Home Depot Institutional.
  • Logistically, it could create some interesting synergies. Topaz, fittings, and lighting, in Southwire rep warehouses? Fittings, lighting and wire on the same truck? Utilization of Topaz’ warehouses, especially its newest in New Jersey which opened earlier this year?
• Topaz significantly broadens Southwire’s lighting offering which essentially was jobsite lighting. Will Southwire seek to broaden its lighting offering? Stay as a “stock and flow / value-engineered” lighting line?
• What happens to the Madison and Garvin and offerings? Integrated into Topaz? Or will everything be branded as Southwire (which would support a “One Southwire” rep strategy. Could Southwire become a “soups to nuts” construction offering? Or desire to be? How would distributors react?

Congratulations to the Topaz team for a nice exit strategy. They built a quality company and while it took a little while to get it sold, selling to Southwire rather than a private equity-backed company, may be better for the people who stay with the company, long-term. Now it will be interesting to see what Southwire either implements in the near future or discusses at the NAED Western and the upcoming NEMRA conference.  There are some distributors and reps who are very interested.

What do you think about the deal? If Southwire asked, what would you recommend as a strategy?

And what does this position Southwire to buy next?

Oh, and from what we understand, December could remain active with manufacturer deals.