And Then There Were 24 (Rockwell Distributors)

Rexel’s “strategic” acquisition of Horizon Solutions leaves Rockwell with only 24 distributors in the US.

The acquisition was a surprise for many and generated questions.

According to the press release:

Rexel SIGNS DEFINITIVE Agreement to Acquire Horizon Solutions 

 “Rexel USA, Inc (“Rexel USA”) today announced that it has signed a definitive agreement to acquire Horizon Solutions headquartered in Rochester, New York with 10 branch locations in New York and New England.

With the acquisition, Rexel USA expands its presence as a leading authorized Rockwell Automation distributor and strengthens its Northeast USA Region.

“We are thrilled to welcome Horizon Solutions to the Rexel USA family,” said Brad Paulsen, CEO of Rexel USA. “We have long admired Horizon Solutions as it is a company led by strong core values and a passion for serving their customers.  We are also excited for the opportunity to further our market presence and ability to serve our customers in the New England and upstate New York markets because of this acquisition. Christopher Monoson, our Northeast Region President, and his entire team, are looking forward to working with the Horizon Solutions team to deliver outstanding service and solutions for our customers.”

“Horizon Solutions has partnered with Rexel to help bring our business to the next level for our customers, suppliers and employees” said John Kerkhove, President Horizon Solutions. “Our strong industrial automation, industrial supply and electrical products, solutions and services are a great complement to Rexel’s branch network and commercial offer, and we are excited about our ability to deliver exceptional customer service”

Rexel expects the transaction to close by the end of the month.”

This could be a regionally strategic move for Rexel, with some national implications, while also potentially benefiting Rockwell.

Thoughts

From a Rexel viewpoint:

• It adds about $175-200M in revenue to its Northeast group and 10 more locations.
• It brings customer mix balance to the group given that a vast majority of Horizon’s business was industrial and more specifically automation. According to some, their Rockwell business could account for at least a third of the business, if not more.
• The acquisition further diversifies the business as Horizon had an industrial supplies / safety segment of their business. It had grown organically years ago and then, in December 2018 they acquired NH Bragg. According to sources this could be a $25-50M business within the region. Gaining further insights into this business may be leverageable by Rexel across a broader branch network … or solely through their website, expanding sales opportunities.
• Horizon also has an energy group focused on the retrofit and EV market. This could benefit from the expertise of Rexel Energy Solutions.
• The Horizon territory is contiguous to other Rexel operations that have Rockwell.

From a Rockwell viewpoint:

• While perhaps not stated, it is “understood” that Rockwell desires less owners. With this sale, there are now 24 US ownership groups in the US. Some have stated the “goal” is 14 and, from looking at the list of 24, there are probably 8 slots that are “open” (meaning that there are 6 that are definite keepers.) so, perhaps this is the case of “musical chairs” to see who is left out (but the “losers” walk away with significant money.)
• While many felt that Rockwell did not desire Rexel to acquire more US operations, either there has been a change of heart, people interpreted Rockwell incorrectly, Rockwell may desire better relations with Rexel (corporate) due to Rockwell’s desire to grow in Europe and hence this is currying favor or Horizon evaluated offers from Rockwell “approved” acquirers (companies that already had Rockwell) and simply chose the highest / best offer.

Observations

• Reportedly most, if not all, of the companies that are contiguous to Horizon had at least some discussions with them going back to last year. There was a sense a deal could occur last year, however, when the capital gains issue was taken off the table, there was no urgency.
• From talking with Rockwell distributors there is a sense that Rockwell desires a distributor to have overall sales of about $250M to support Rockwell’s desired investments. This is overall distributor sales as there are resources Rockwell recommends that benefits the overall distributorship and are not Rockwell-centric. Many feel that they need a path to $500M relatively quickly. Given that Horizon was at the cusp of the lower-end and probably challenged to grow organically as well as via acquisition and the company’s succession plan was unclear, it was a clear acquisition target.
• 7 current Rockwell distributors exceed $1 billion in sales. Perhaps companies need to think of this as their overall goal?
• In looking at a Rockwell parent map that Channel Marketing Group recently developed for a client, other than wanting distributors to be of a size to support investments, it is difficult to see how Rockwell benefits from consolidation in most geographic areas. The current map has much “gerrymandering” as there is not geographic density in many areas. Hence sales, marketing and logistics synergies are difficult to achieve. Perhaps, at a point in time, selected distributors will need to engage in “trading” of APRs? It has happened before. Now it may need to happen on a larger, or more frequent, scale.
• 19 of the 24 remaining Rockwell distributors are AD members. In reviewing the list, maybe 7-9 of them are not acquisition targets based upon size and/or having “known” succession plans, so, that means 10 could be sold in the coming years. Will they be acquired by Border, McNaughton-McKay or Kendall (all billion-dollar companies) or by a national chain? A few may merge with contiguous companies like French Gerleman and IAC did to form Agilix Solutions.
  • Forecast … look for more acquisitions of Rockwell distributors. The question is timing. The potential acquirers have been pre-determined.

With electrical industry opportunities driven by the current geopolitical environment coupled with a renewed focus on US manufacturing as well as above industry standard performance, financially, that Rockwell distributors typically generate, this appears to be another good acquisition for Rexel.

Congratulations to John Kerkhove and his team. John joined Horizon Solutions 4 ½ years ago from Crouse Hinds to provide “next generation” leadership for the ownership group. Perhaps it is coincidental that he is coming up on 5 years, however, it was unclear to many what the company succession strategy was. Horizon was formed by the merger of Holmes Electric, Oakes Electric and Rero Distribution and the ownership team were all board members.

This is Rexel’s second acquisition of a Rockwell distributor as early this year they acquired Winkle in northern Ohio.