Acquisitions Continue – Kele, Lester & More Coming

While many expected a significant number of acquisitions to be announced at the end of the year, anticipated changes in the tax code seem to have delayed many of them.

According to sources who were involved in distributor and manufacturer deals, there was not the need to work through the holidays to close a deal and many companies have simply delayed the transaction.

But that has not stopped the acquisition train.

Automation Distribution – Kele

Kele, a 12 location automation distributor that claims to be “the largest stocking distributor in the industry” with 1.8 million parts in stock including HVAC, lighting parts, peripherals and panels” and operates Control Consultants, Inc (CCI) in New England, Temperature Control Systems in Texas and Oklahoma, MI Controls based in the Pacific Northwest and Lesman Instrument Company in Chicago and Milwaukee, and is owned by a private equity firm, The Stephens Group, based in Little Rock, Arkansas, acquired A-Tech, Inc, an Oklahoma automation distributor.

A-Tech will be part of the Lesman Instrument Company.

Broadly, Kele is focused on the BAS industry and provides components needed for a building management system.

While investing in many areas, The Stephens Group has a focus in engineered industrial products with  sub-sectors of particular interest being “Flow control, process and motion control, niche / specialty small equipment, professional tools, engineered components (e.g. sensors, switches, etc.), automation controls, environmental technologies, test and measurement devices and instrumentation, and specialty building products.”

A couple of takeaways from this deal:

• Private equity involvement. Private equity firms are showing more interest in distribution as well as automation as it ties to manufacturing investment in the US. A significant growth plan is required as is “finding the right” PE firm.
• Automation consolidation. Last year we saw a number of automation distributors acquired. The industry has many “small to medium” size distributors who are facing succession, technology and talent challenges making them viable acquisitions candidates.
• Technology. Both Kele and A-tech had robust websites that were commerce-enabled. While it is unknown what percent of their sales were online, the sites provide content and customer service benefits to customers and the companies.
• Multi-industry. Check out the Kele site. There is a recent trend for acquisitions to lead to product offering diversity, helping the acquirer obtain a greater share of wallet from their customer and making them more challenging to compete against at a customer.

Lester Sales Acquires Two in Pittsburgh

Lester Sales, a leading Midwest electrical manufacturer representative headquartered in Indianapolis, entered the western Pennsylvania and West Virginia market in a big way. Rather than entering the territory with the help of a manufacturer or acquiring a rep firm, Lester entered the market in a big way making two acquisitions. Lester acquired Cardel-Criste and “acquire certain assets of Paolicelli/One Source Associates’ Western PA/West Virginia operations”. The Paolicelli / One Source assets, according to a posting on inside.lighting relate to the supply division lines, people and facility. Lighting lines and personnel from Paolicelli are seeking jobs and representation.

Major lighting lines such as Hubbell Lighting, Lutron, MaxLite and WAC will need to consider new sales strategies for these markets. It is projected that 10-15, at least, supply lines may be seeking new homes.

Lester will combine the two agencies and presumably “cherry pick” which lines it wants to retain, with most lines retained probably being ones that it has a relationship with in its other 7 states.

Word from the market is that a number of lines are seeking new homes and agencies are pursuing the lines.

The Pittsburgh / West Virginia market, while having significant growth potential due to recent marketplace planned investments, is “underserved” from a manufacturer representation viewpoint. It will be interesting to see where lines go … do other agencies ad lines (and maybe additional personnel) or will another agency be born or will someone new come into the market and make investments?

Takeaways:

• Rep world continues to consolidate. In some instances, due to growth desires by ownership, which in some cases is an ESOP. Some manufacturers also favor reps with a larger footprint (Prysmian will now have only 12-13 reps throughout the country).
  • The question then becomes, which lines favor the “mega” model and encourage it?
• Frequently those selling are due to generational / management issues.
• It is interesting that One Source sold a division, which is unusual and now begs the question of, “what is One Source’s plans for investing into the business after exiting the Pittsburgh / West Virginia market?”
• Marketplace input shared that this acquisition was not necessarily an “acquisition of opportunity.” Lester had someone already investigating the Pittsburgh marketplace, planning for expansion. While “different”, the intentional approach to understanding marketplace dynamics and investing for this, can provide a strong foundation for future growth.

Look for this to be another busy year for acquisitions. Last year we tracked 21 electrical distributor deals. Couple that with the rep mergers and manufacturer deals, and there is an industry going through change. Understanding the possible moves, and how competitors will react, is crucial to considering “next moves” to retain and take share. Think through the “what ifs” to identify potential opportunities.

As a note, Channel Marketing Group was a business advisor to Cardel-Criste. We wish Mike Criste and Lester Sales well in their new endeavor.