Halco Focuses on Core

Halco recently announced the sale of their specialty lighting business to Hayward Industries, a leading pool and irrigation manufacturer.

Every electrical / lighting distributor is familiar with Halco and their lamp, ballast and fixture offering. It’s probably fair to say that most electrical / lighting distributors, and probably Halco sales agents, were not aware of its pool, spa and landscape lighting business – which they defined as their “specialty” business.

So, being the inquisitive type, it was time to ask Halco about the sale and what it means to electrical distributors. I spoke to Chris Chickanosky, Don Runyon and Emily Kantsios to for some background, insight and answers.

Some background on the specialty business

• The Halco specialty business according to the 8-K filed by Hayward was about a $40 million business. Halco sold it for $55 million.
• Halco had started the landscape lighting business in 2012 and acquired the pool lighting business in 2015.
• While it seemed to make logical sense to expand into these areas to support electrical / lighting distributors because it is “lighting”, like many Halco came to realize that low voltage lighting is “different.” The electrical contractor, in many instances, especially residential contractors, is not pursuing this business nor focuses on the remodeling business. This is more the purview of the landscape contractor and the pool contractor. There is little overlap.
• Halco acquired, and developed, intellectual property in this segment as automation is becoming more prevalent in this space.
• In fact, the overlap is so nominal that Halco had few “traditional” electrical / lighting distributors selling this offering and little of the revenue even was generated by their independent manufacturer network. In fact, aside from some shared support services, it operated as separate businesses. Perhaps it is a missed opportunity for residentially-oriented electrical distributors?
• The pool and landscape business, as well as lighting in this segment, is consolidating. Hayward approached Halco as they were seeking to grow their lighting business and further diversify their business. In the current economic environment, and residential environment, landscape investments / renovation and upgrading opportunities will continue to grow as people invest into their low-rate mortgage homes. Further, there is a trend to “hardscapes”, which is helping grow the landscape lighting market.

What it means for Halco’s electrical distributors

• According to Chris, this was a niche business for Halco, and a vast majority of the business is focused on its core offering … which serves the electrical distribution market.
• The proceeds from the sale will help the company accelerate some investments into the core business. Areas that will benefit, over time, include technology, product development, further analytics and digital sales tools and training resources.
• Further, since there were some shared support services, most notably marketing, and these resources are staying with Halco, this will increase capacity to support the core business.

In the words of Chris, and coincidentally echoed by Don later in the conversation, “The core of Halco is electrical distribution. It is our core competency.”

While the specialty business was not a distraction, it was a niche business. It was profitable, however, realistically it was not going to grow into a major revenue stream, and for other lighting companies also, the pool and landscape lighting business is also “nominal”. The core channel to market is different and it is a natural fit for a pool manufacturer and to be sold by pool and landscape distributors.

The divesture further enables Halco to bring all of its resources to support electrical distribution and, with some of the incremental funding, further support its core.

Sometimes diversification isn’t necessary and focusing on the core is best for all.