Distributor Acquisitions Continue – 3 More

Over the past couple of weeks there have been at least three more electrical distributor acquisitions (and remember, industrial automation is a sub-segment of the electrical distribution market.)

While one gets a distributor into a new market, the other two bring emphasis to opportunities in the industrial segment.

Sonepar Acquires Richards Electric

Sonepar made a foray into Ohio with the purchase of Cincinnati-based Richards Electric. Richards is $125 million contractor-focused electrical distributor with four locations … two in southern Ohio and two in Kentucky.

According to press release, and a quote from Rob Taylor, President of Sonepar North America, said: “Richards Electric’s footprint makes it a great strategic fit for Sonepar. It is a well-respected company with an outstanding track record of solutions-oriented customer service that aligns very well with ours. I look forward to our companies coming together and leveraging strengths to expand Richards Electric’s business opportunities.”

While Sonepar is noted for acquiring platform companies that can expand and have a dominating presence in its geographic market, the Richards acquisition could be very “strategic” (to use Rob’s word) for Sonepar considering:

• Richards could be utilized as a platform to expand into the Cleveland and/or Pittsburgh markets
• There is opportunity to grow into the Kentucky market to become the dominant contractor-focused distributor in Kentucky (CED dominates the Kentucky industrial market).
• Logistically, Cincinnati, and Richards, lies on I-70 … which just happens to run from New Jersey (Cooper Electric) to just south of Springfield, IL (Springfield Electric) and hence could eventually be a transit point or there could be other interesting “redistribution” scenarios.
• With Springfield Electric having some locations in western Indiana and Richards going as far “west” as Dayton and Lexington, one, if not both, of these companies will probably expand Sonepar coverage into Indiana.

There were not many “significant” opportunities in the Ohio marketplace, so this becomes a nice strategic move with many potential benefits for Sonepar.

Motion Industries’ Parent Acquires Kaman

Kaman Distribution, which was purchased two years ago by a private equity firm, was sold to Motion Industries, a subsidiary of Genuine Parts Company.

While many may not recognize Kaman Distribution as an electrical distributor, they do have a small electrical business. In 2012, Kaman acquired Zeller Electric and in late 2012 / early 2013, Kaman became a Schneider Electric distributor. They have expanded their offering and, while still a small percentage of their business, this is another indication of an industrial company desiring to be a broad-based, technical product supplier, to their customers.

According to sources, Kaman was purchased in June 2019 for $700 million with an EBITDA of “about mid-single digits.” The company is projected to have sales of $1.1 billion in 2022 and an EBITDA of $94 million, hence a margin of 8.5%. The company was sold for $1.3 billion, hence a “healthy” 13.8X 2022 EBITDA.

While some may think this is “expensive” for a distributor, the dynamics for industrial distributors appears to be different as our source compared this deal to the financials for Applied Industrial Technologies, which is very similar (AIT is a publicly traded company, as is Motion Industries’ parent, so you can review AIT’s 10-K.)

Given the growth outlook for the industrial segment – automation opportunities, infrastructure program, companies reinvesting into US manufacturing, EV / battery plant investments, etc. – the industrial market is expected to experience significant opportunities.

(And remember, Graybar has made four acquisitions of automation distributors in North America in the past year or so.)

AAP Acquired by OTC

According to Industrial Distribution magazine, Ohio Transmission Corporation (OTC) has acquired AAP Automation.

OTC, which is owned by private equity firm Genstar Capital, now has 61 locations in a variety of industrial segments and has been on an acquisition spree.

AAP Automation is headquartered in Englewood, CO. They have three sales offices and two field service locations throughout Arizona, Colorado, and Utah and has 55 employees. AAP’s footprint also reaches into Idaho, Wyoming, and New Mexico. One of their key lines is ABB.

Takeaways

Some thoughts:

• If you are in the industrial space, the market is changing. The technically-oriented distributors are diversifying. Will Rockwell distributors follow? Will these diversified companies get into an end-user, control the rest of the spend and leave the Rockwell distributor with only Rockwell products? Or maybe some of the MRO products.
• If you’re an industrial MRO-oriented manufacturer, what is your strategy to better understand these type of industrial distributors (and there are others).
• If you are an automation-oriented supplier, how will geographic authorizations be impacted?
• If you are a rep for one of the suppliers impacted, relationships may change, and you may need your suppliers to consider interacting at the corporate level of these companies to better understand their strategies … are they going to expand and standardize? Acquire disparate companies? Provide access to accounts where they have not had an automation offering and more questions?
• And if you are a key supplier … like ABB or Schneider, how are you thinking about authorization strategies? Your channel strategy?

And relative to the Sonepar acquisition of Richards, it will be interesting to see the investments that are made in 2022 to position this new operating company for accelerated growth. Richards may be the smallest “platform” that Sonepar has acquired … but it won’t be for long and “standard” growth is not the expectation.

The market is going through much change and don’t be surprised to see more deals announced by the end of the year. They are coming “fast and furious”. The question for the “survivors” becomes “what is your strategy?”